The sub prime residential mortgage market upheavals have caused the banks to start tightening credit standards, not just in the residential world but in the commercial world as well. The regulators are not far behind and we all know that ‘fixes’ for problems in the residential arena are quick to spill over into our world. So, let’s be prepared and know the alternatives for our commercial customers. The SBA 504, New Market and JDA subordinate financing programs are wonderful tools to supplement the shrinking conventional mortgage money. Here’s how they work:

SBA 504: for small businesses only (for profit entities; net profit after taxes of $2.5 million or less; tangible net worth of $7.5 million or less). For land/building acquisition, renovation, construction, condominium, coop, machinery, commercial vessel. Add up the total project cost (acquisition, renovation, construction plus soft costs such as appraisal, environmental, title insurance, accounting, legal, permits, etc.). A bank or other conventional lender lends 50% and takes a first lien on the project. The SBA 504 loan provides 40% and takes a second lien on the project. The buyer provides 10% (extra 5% if start up or special purpose building). Maximum SBA 504 loan is $4 million for manufacturers, $2.0 million for women, minority, economic development zone, exporters, $1.5 million for others. The 504 loan is for 10 or 20 years at a fixed rate based on 10 year treasury. 504 loans are available from certified development companies licensed by SBA. The oldest and most respected CDC in the tri-state area is Long Island Development Corporation/Greater NY Development Co. at www.lidc.org.

New Market Loan Fund: for small businesses (same standard as SBA but more flexible) and not-for-profit entities. Capital acquisition, construction, renovations and refinancing (latter only if money from refinancing is used for the operations). A conventional lender lends 50% of total project cost in first lien position. The New Market Fund lends 40% in second lien position (except on refinancing New Market can lend up to 100%). Fixed rate 25 years based on 7 and 10 year treasury rates. Maximum loan is $2.5 million (can go higher for certain projects). Can be combined with SBA 504 and other government subordinate loan programs. Available from LIDC/GNYDC at www.lidc.org.

New York Job Development Authority: for small businesses (less than 500 employees) in NYS; for land, building (including construction), renovations; lends 40% behind conventional lender’s 50%. Strict job creation requirements. Fixed and floating rates available. Maximum loan $2.5 million. Available from NYS - www.empire.state.ny.us.

        All three funds can be combined for the right project with or without a conventional lender. New Market is the most flexible of the programs. So, when you’re working on that next commercial real estate deal, keep these loan programs in mind to provide low cost, affordable financing for your buyers (and as sales tools for your sellers).