ORLANDO—Chris Hurn, founder ofFountainhead Commercial Capital, is convinced that every broker loses sales because of this. It seems simple, but could he be right?
Hurn previously started Mercantile Commercial Capital, an SBA 504 loan lender that reached the Inc. 500 under his leadership. Mercantile was folded into Old Florida Bank, and Hurn exited last year. GlobeSt.com caught up with Hurn to talk his theory and other issues related to SBA loan programs in this exclusive interview.
GlobeSt.com: What are the key SBA loan programs?
Hurn: The SBA's most well-known loan programs are the 7(a) and the 504 loan program. The 7(a) loan program is used primarily for business acquisitions, partner buyouts, working capital, debt consolidation, startup capital, equipment financing, and even real estate financing.
504 loans, however, are a better product for small business owners who want to purchase owner-occupied commercial real estate. They typically have two mortgages, a first for 50% of the total project amount and a second for 40% of the total project amount.
The permanent second mortgage is a 100% SBA-guaranteed bond that is fixed for 20-years at a below-market interest rate. With 504 loans, borrowers pay fixed interest rates on fixed assets with longer terms—and usually only have to put 10% down. This lessened down payment requirement results in more potential buyers for listed commercial real estate—obviously key for many commercial real estate brokers—and these small business owners hold on to more of their precious capital as well.
GlobeSt.com: Why should a broker understand SBA financing?
Hurn: SBA loans expand the universe of potential buyers for many commercial listings. If a broker has a listing for a building that can be owner-occupied, then the number of potential buyers is expanded to any entity that can afford only 10% down payment, compared to a 20% or larger down payment required by traditional banks offering conventional commercial mortgages.
The difference can be staggering when you analyze the pool of potential buyers for a multi-million dollar property. Every real estate broker has lost sales because their buyer couldn't get financing. SBA 504 loans make it easier for business owners to afford buying commercial real estate—plain and simple.
Want to hear more from Hurn? Check out my last article featuring his insights: What's Driving the SBA Loan Market?
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