Notes from the CEO

Perfect Time for Small Business Owners to Buy Properties

John Shelby

John Shelby

Five Star Bank’s John Shelby gives us an overview of Small Business Administration lending and some insight into why, if you’re in the market, right now is the time to act.

With the investor CRE market still in the tank with no end in sight, the only glimmer of hope is the small owner/user product on the market. There is an oversupply of small office, industrial, flex-space and even some retail in the market place which demand has not caught yet. Coupled with the fact that SBA loan rates are near their historic lows this is the perfect time for small professional business such as doctors, law groups, CPAs, DDSs, etc., to buy their own properties. Property prices are low, rates are low and banks are more than willing to share lending responsibility with the Federal Government. There are two primary types of SBA loans available for small business, they are the SBA 7A and the SBA 504 loans.

The SBA 7A is used primarily for furniture, fixtures, equipment and/or working capital. It’s a variable rate loan and is really designed for shorter term assets, however it can be used for the purchase of commercial real estate. Some banks only use the SBA 7A loans because they fetch a high premium when sold on the secondary market making it profitable for the bank. To oversimplify how it works: the borrower comes in with a down payment, the bank makes the loan and the borrower and the government guarantee the loan. If something happens to the borrower, the government will step up to protect the bank. Like any government program the borrower might get bogged down with paperwork so when choosing a SBA 7A Lender, make sure you choose a SBA PLP Lender. PLP stands for “Preferred Lender Program”, it’s a special designation offered only to qualified banks able to perform up to SBA standards.

On the other hand the SBA 504 loan is only used long-term assets, defined as assets with a life expediency of 10+years. Printing presses, forklifts, commercial real estate and the tenant improvements that go with the space can all be financed with the SBA 504 loan. The 504 works like this: the borrower comes in with a down payment, the bank funds a portion of the loan and SBA funds a portion thereby allowing banks to lend to small business at a reduced exposure level because the government is also participating.

Now I have oversimplified these loans but when choosing a SBA lender it’s not always about the lowest rates but more so about how to get it done. The best loan out there is not the one you thing you can get but the one that will help the small business achieve its financial goals. For more detailed information, feel free to call us at 916-640-1500 or visit the SBA website.

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6810 Five Star Blvd.
Suite 100
Rocklin, CA 95677

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3100 Zinfandel Drive
Suite 100
Rancho Cordova, CA 95670


2400 Del Paso Road
Suite 100
Sacramento, CA 95834

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Elk Grove, CA 95624

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Suite B
Redding, CA 96002


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Suite 100
Chico, CA 95973