Today’s post is written by Michael Green, Commercial Loan Originator for Counsel Mortgage Group, LLC.
For those of you old enough to remember, that line is from the classic comedy dialog between Bud Abbot and Lou Costello first released in 1945. (This is available on You Tube. A link is offered for your entertainment … a 6:18 minute escape from the trials of the day … enjoy.
https://www.youtube.com/watch?v=sShMA85pv8M If the link doesn’t take you to the program, cut-n-paste it in your browser.) The dialog also, however, illustrates the difficulty in communication and the confusion it can create. Consider our current financing environment.
In the last couple months the Federal Reserve (the Fed) has injected something over $3 trillion into the economy by a variety of programs. On paper, about anyone who can fog the mirror qualifies for something. Sometimes you’ll deal with the Fed itself, or another Federal agency, e.g., the SBA, and sometimes through quasi Federal agencies called “banks”. Of the $3 trillion, about $468 billion was directed to the Treasury to administer loans. The Treasury, through member banks, can leverage this 10X in making loans. So, in just a couple months we have upwards of $7 trillion of new money, loans or grants, available.
But how do you get it, from what source, and what are the hoops you have to jump through?
All good questions, and painfully shy of readily available answers.
One of COVID’s hardest hit segments of business is small business, reportedly responsible for some 40% of the newly 40 million unemployed. For this group finding the path to longevity is often beyond their resources to obtain. We know, because in the last several weeks several of them have ended up on our doorstep … more properly on our phone or in our email inbox. The glitz and glimmer of “cheap money” (I never liked that term.) wears off quickly if you can’t obtain it.
Largely overlooked in the confusion is readily available access to SBA 7(a) loans … what I term “regular SBA loans”. Most lenders have now been able to restructure their operations to accommodate servicing both customers who want to go through the Government’s recent survival offerings, as well as those seeking “regular” loans … and they want those regular loans.Given that Fed Funds are 0-1/4%, Prime is now 3 ¼%. SBA guidelines require a 7(a) lender not charge more than 2 ¾% over Prime … today a maximum of 6%. We recently got a term sheet for a borrower at 5 ¼% – not unusual and nothing fancy. Use of proceeds doesn’t have to be an acquisition of a business, or another business or business expansion. It can be used to re-finance existing term debt, lines of credit, credit cards (business only – no personal), private equity loans, etc. Many borrowers today want to increase liquidity for the rainy day that is upon us. 7(a)s can be used for cash-out also, usually cap’ed at 30% or so of the total loan, and subject to other qualifying parameters. The good part is that there aren’t people waiting in line for “regular” 7(a) loans. I confidently suspect this because I get 2-3 calls a week from lending officers I know, and some I don’t, asking me if I have any loans on my desk looking for a home.If you are one of those who believe that this current crisis too, will end one day, and want to capitalize on distressed properties, now is a good time to begin re-structuring your balance sheet and capitalizing your war chest. If you’re in this group and haven’t started steps to leap into action, you’re behind the curve! I also get a call or so a week from investors looking for distressed properties. But not to fear … it’s too soon. Lenders have been beyond accommodative (in most cases) in granting forbearance. This doesn’t solve the problem of closed or struggling businesses, and by extension the borrowing landlord/investor, but it does have the effect of extending the outcome. Our current crisis has a different dynamic than the 2008-2009 train wreck, and lenders don’t want a repeat of anything closely resembling that. They’re trying to stay ahead of the day of judgement.
But even the Fed has a limit on how much money it can produce. Although some Modern Monetary Theory (MMT) advocates in Congress suggest there is no limit. But that’s discussion for another time.
But for today, if you think we might help, give us a call at Counsel Mortgage.
We offer a variety of products and services, ask us how we can assist you today:
Counsel Mortgage Group®, LLC
480-502-1000
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