Small business owners hoping to close U.S. Small Business Administration 504 Program loans have been hit hard by the government shutdown. The SBA has been closed since Dec. 22, leaving many business owners in limbo while hoping to finalize commercial real estate deals with impending deadlines.
Many entrepreneurs have put down non-refundable deposits, paid for appraisals and spent various funds on their deals, which will fall apart if not finalized soon. The shutdown has paralyzed many deals and delayed more than $2 billion in SBA lending, according to Moody's Analytics.
If you've unfortunately been put in limbo as a result of the government shutdown, here are three options to help see you through until the SBA reopens its doors.
1. Delay as much you can.
Commercial real estate is a competitive business, and many borrowers are feeling the squeeze from now impatient sellers. The fear of lost deposits and other costs is real. The first and best option is to do whatever you can to delay your closing until the government reopens, hopefully soon. The seller and your lender will have to agree to this as well.
While this is the best way forward for the borrower, the seller may feel otherwise – and this is what's causing all the anxiety in the marketplace. If the property has been on the market for a long time or the seller finds that other suitors might have the same SBA problem you do, then perhaps delaying the closing for several weeks might work out for both parties. It can't hurt to ask, and I imagine that many borrowers have had or will have this conversation soon.
2. Put more "skin in the game."
Unless you have a very sympathetic seller, you will likely have to put some additional money into the transaction – or commit more of your deposit before closing. While not ideal, it's likely better than losing the deal altogether.
The sad reality is that sellers have no obligation to wait for the government to reopen, and many may see it as an opportunity to find another buyer who can close sooner. We all know that money talks, so one way to keep your deal alive is to put more cash in the seller's hands while coping with the shutdown.
3. Look for interim financing from another source.
The last and possibly most pragmatic option is to find interim financing from another source. As someone who has been in the SBA loan world for nearly 20 years, we have been reviewing many deals during the shutdown and helping borrowers secure interim loans that enable them to close on their properties.
SBA loan experts should be able to quickly determine whether or not the SBA will authorize and fund an SBA 504 loan. For one of our borrowers who was purchasing a building in Oregon, we funded the SBA portion of the loan because we are confident that the SBA will approve it once the government is reopened. We offered an interim financing package to our borrower that, in the long run, is far better than losing out on their dream property.
While the best outcome is a quick end to the government shutdown, small business borrowers do have some options to save their real estate deals.
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