Wed jan 16, 2008
With banks tightening credit in a weakening economy, the Small Business Administration 504 program could be the answer for New Jersey small-business owners who would rather own their space than rent, but can't get a loan at reasonable terms.
The 504 program offers business owners second mortgages, or "piggyback" loans, to help them borrow up to 40 percent of the total funds they need at fixed, below-market rates over a 20-year term. The loans are given in tandem with conventional bank loans and are marketed and underwritten by community development corporations.
"We are a countercyclical industry," said Josh Donovan, vice president of New Jersey Business Finance Corp. in Fort Lee, a non- profit agency that closed 56 of these loans in New Jersey for the SBA totaling $53 million last year. The loan number was less than the previous year while the dollar amount was more. He expects to do more in 2008.
"As credit terms tighten up, there is additional need for our type of participation," he said.
The government offers the program as an incentive to create and retain jobs and to give woman- and minority-owned businesses a leg up. The loans lower the borrower's financing costs while reducing the risk for participating banks, thereby making it easier for business owners to qualify.
The qualifying criteria are even less stringent for manufacturers, women- and minority-owned businesses, and companies in community development zones.
In a typical 504 deal, the borrower puts up 10 percent of the total cost of buying and refurbishing a building, instead of the 20 percent minimum usually required in a bank loan.
The program will even fund start-up businesses, but start-ups must provide 15 percent of the total funding instead of 10 percent. Reasonably good credit and personal guarantees are required.
Source:http:: http://www.blackenterprise.com/yb/ybopen.asp?
section=ybsb&story_id=113631575&ID=blackenterprise
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