Impending end of SBA incentives seen as spur to property deals

Lenders and commercial real estate brokers hope the approaching end of Small Business Administrative incentives lights a fire under potential buyers of industrial, commercial and office buildings.

But even though the SBA incentives are likely to run out by mid-December, only a modest number of buyers are coming off the sidelines.

Incentives included in the federal stimulus package allowed the SBA to reduce or eliminate the fees it ordinarily collects on two popular real estate lending programs, the SBA's 7(a) and 504 loans.

Application fees on the 504 loans which are used to buy property and equipment are set at 1.5 percent of the loan amount, and the bank pays another 0.5 percent fee.

For 7(a) loans, fees range from 2 percent to 3.75 percent.

On a $2 million loan for property, the savings from the temporary fee reduction could amount to $40,000, says Tom Burke, a senior vice president with Wells Fargo and a specialist in SBA lending.

Even on a $100,000 or $200,000 loan, the savings could run $3,000 or more.

"That's a pretty good saving," Burke says, especially at a time when borrowers are looking to trim every dollar from the cost of their loans.

The SBA believes that the $12.3 billion allocated for the fee-reduction will last until late November maybe even mid-December and the agency plans to wind down the program in the next couple of months, says Mike Stamler, a spokesman for the agency in Washington, D.C.

He says the incentive program appears to have helped kick-start the economy. Loan applications nationwide began climbing as the program took effect in mid-February.

The Nevada State Development Corp., a major SBA lender, has seen a bit of a recent uptick in applications, says Adriene Burney, a senior vice president and loan officer in the nonprofit's Reno office.

If the incentives will wind up down in late November, she said borrowers need to begin the application process within the next couple of weeks if they want to take advantage.

Along with the SBA incentives, Burney said buyers of commercial and industrial properties currently benefit from low interest rates Nevada State Development Corp. is quoting a rate of 5.25 percent on its SBA 504 loans this month as well as sales prices that have come down sharply from their peak levels of several years ago.

Burke says some potential borrowers may not be aware of the incentives because they're so involved with the day-to-day details of running their businesses during the downturn.

Tim Ruffin, senior vice president and managing partner of the commercial real estate company Colliers International in Reno, says a more important incentive to buyers in recent months has been the decline in prices for many office and industrial properties.

In many cases, buildings now are selling for less than it would cost to replace them.