While Harborstone Credit Union has been offering business loans since 2002, the Lakewood, Wash.-based cooperative could not have predicted how great member demand would be for the SBA’s programs.
So when the $730 million credit union heard about a new offering from the SBA that would help refinance commercial real estate properties, it quickly signed on to participate. Launched Feb. 17, the 504-formulated program will allow small businesses facing maturity of commercial mortgages or balloon payments before Dec. 31, 2012, to refinance their mortgage debt with a 504 loan. The SBA began accepting refinancing applications Feb. 28. The program, authorized under the Small Business Jobs Act, will be in effect through Sept. 27, 2012.
The new refinancing loan is structured like SBA’s traditional 504, with borrowers committing at least 10% equity and working with third-party lending institutions and SBA- approved certified development companies in the standard 50%/40% split, according to the agency.
Janie Sacco, Harborstone’s SBA specialist, said the new SBA 504 program loan is specifically focused on financing existing debt for a business’s owner-occupied commercial property.
"Potential benefits include lowering your interest rate, lowering your monthly payment and borrowing up to 90% of the market value of your building," Sacco said.
Unlike the existing loan under the SBA 504 program, this is the first time business owners are able to borrow solely for refinancing of existing debt without requiring an expansion of the business or job creation to qualify, according to the agency.
Meanwhile, Harborstone has grown with businesses in South Puget Sound for more than 50 years, Sacco said. More than 1,500 local businesses are likely candidates for the new program, she added.
"We are pleased to bring this refinancing option to local business owners," Sacco said. "And if this new 504 refinancing program doesn’t meet their needs, we will explore alternatives that would be a good fit."
Sacco said Harborstone started offering SBA 504 loans last year when it became an SBA lender. As demand continued to grow for the agency’s programs, the credit union started to focus on 7(a) loans as well. Since then, the traditional 504 program has been fairly robust with a handful of transactions closed in 2010. Sacco is currently working with four more and another seven contacts have been made with the new refinancing offer.
One draw of the program is tapping into a target market of businesses that have maturities coming due on properties purchased three to five years ago.
"They may have been buying when market values were higher. Now with the deflation and the loans are coming up for renewal and maturity, the loan to collateral may be too high to be eligible for extension or renewal," Sacco said. "If they’re not able to do either of those things, and there is no other product that can help, a small business owner may be facing foreclosure."
The small businesses that are struggling now are those that opened for business right before the economic downturn in 2007 and 2008, Sacco said. Revenue declines and drops in profitability and cash flow have been the fallout. Because most lenders want to see at least a three-year record of revenue trends, these beleaguered businesses are less likely to get approved for refinancing, Sacco said.
Still, credit unions as well as banks are stepping up to offer relief to small businesses in the area served by Harborstone, she pointed out. For its part, the credit union will exhaust all options before turning away small business owners.
"We have a plethora of revolving funds from nonprofits that can help meet their needs. We also look at other products offered by state or local agencies. As a member, we want them to have a different feel when they come through the doors. People expect us to focus on trying to meet their needs."