Help for Underwater Properties

February 17th, 2011

Help for Underwater Properties

As published in the The Wall Street Journal by Emily Maltby on Thursday, February 17, 2011:

Help for Underwater Properties

For small-business owners with underwater commercial properties, the Small Business Administration is tossing out a new life vest.

For a limited time, the SBA is offering a loan refinancing program designed to help small businesses whose commercial mortgages are set to mature in the next few years. For many of these businesses, the mortgages — obtained during the housing bubble – are greater than current property values.

The program, authorized under September’s Small Business Jobs Act, is structured like the SBA’s traditional 504 loan program. Business owners work with lenders, which cover 50% of the loan, and nonprofit Certified Development Companies, which cover 40%. The borrower then only has to contribute 10%.

Banks usually issue loans that are about 75% of the value of the property. But under this program, 90% of the current appraised property value (or 100% of the outstanding principal, whichever is lower) would be financed.

Most commercial mortgages that are maturing today were issued prior to the recession. In many cases, the values of those properties have fallen, so owners who are refinancing their mortgages must either make up the difference out of pocket or face foreclosure. The SBA program could help make up that difference because a greater percentage of the value of the property can be financed, pushing it closer to the original mortgage amount.

The SBA estimates that as many as 20,000 businesses may ultimately participate in the program. Eligible owners must demonstrate that their loans are current and that they have successfully made all required payments in the last year.

Barbara Morrison, chief executive of TMC, a CDC in San Francisco, says the program could help small firms keep their doors open. “If the business goes out of business, then all the employees lose their jobs and could face foreclosure on their homes, so it’s a ripple effect,” she says.

Applications will be accepted starting Feb. 28 but priority will be given to businesses that face loan maturity or balloon payments before Dec. 31, 2012. The program is scheduled to end Sept. 27, 2012.

For more information and to read the article, please visit: The Wall Street Journal article or the TMC website.

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