The 504 Loan Program: Fact and Fiction
Ivy Hartman: Our guest today is a co-founder, President and CEO of one of the fastest growing companies in America. We’re welcoming Christopher Hurn from Mercantile Commercial Capital. Now Christopher, there are some myth and myth perceptions about SBA loan programs and he’s here to dispel some of those for us. One of them is that some of them they’re changing, some of their policies and procedures in light of the credit crunch recently.
Chris Hurn: Oh that’s an absolute over blowing myth. It’s not the case at all. In fact the SBA is continuing what the credit policies they’ve always had. You know, it’s meant to be there in times like these. In bad times, they tend to be a stabilizing force, that’s just not the case at all. In fact my business has been, we just had a record breaking first quarter. We have the biggest back log of deals we’ve ever had in our history and so it’s just it’s going on unabated, absolutely.
Ivy Hartman: And your business is what’s our viewers know is really helping small business owners with gaining capital and we’re really through SBA loan programs, specifically the 504 Loan Program. What are some of those myths about getting a loan through the SBA?
Chris Hurn: Well, what I hear a lot is about the paperwork that how it’s you know, we kill a couple trees every time we do an SBA loan. The reality is that it’s not that way. In the last 10 years, the SBA is really reformed quite a bit. There has been a lot of streamlining that’s occurred. I would say that we’ve actually had borrowers if you go to my website you’ll see testimonials from borrowers who have said actually that the documentation was less than we refinance their house. So I think anymore, we like to try and keep it as simple and hassle free as possible and I think you’re going to find that with someone like us, it’s about as easy as getting commercial loan through a bank. It’s just not much, extra paperwork at all.
Ivy Hartman: Is there a stigma for people who use the SBA loans?
Chris Hurn: Yes, there has been historically and it’s unfortunate. I mean, a lot of people think of SBA as a wonder of last resort or you know from the bottom of the barrel borrowers and it’s really unfortunate because especially for the program that we represent in the five or four loan, it’s really for the smartest borrowers.
If you did sort of a bell curve, you’d see that we have on the one extreme, the left hand side of the bell curve we have a lot of borrowers who it’s only because of our focus and our creativity that we’re able to get some of those deals done and they’re for some of the start ups and things in that nature.
But on the other extreme, we have the really super, super successful doctors, lawyers, architectural firms, hoteliers etcetera who had any possible bank could have given them financing. They’re very, very financiable but they chose to go with us to get smarter financing as we call it because they only had to put half to a third the money down. They got a longer term which means they had shorter monthly payments. They we’re able to get it done much quicker than what they could have out of an ordinary banks so it’s you know, they’re the smart borrowers that we like to say on the right hand side of the bell curve.
It’s that 80% in the middle that we battle over everyday with the banks in every street corner and more and more business owners need to realize that it’s just simple smart financing to not put as much money down as they have to because what happens is there’s a lot that call it risk continuum with banks.
When you lower the bank’s risk, you converse the increase the small business owner’s risk. By that I mean putting all the capital down. If you put less capital down on a business owner’s perspective, theoretically, you would increase the bank’s risk.
Now the difference is because of our program that doesn’t exactly happen, but it’s little things like that I find that more and more business owners need to realize that the small business commensuration is there to help them and it’s a wonderful tool to do that.
Ivy Hartman: Now right, there are a lot of fees at associated with.
Chris Hurn: Again it’s another, that’s a relic from the past. It is not the case anymore. The SBA has multiple programs. One of the programs, the biggest, the flagship program really is the 7A program. It’s not the one that we do, that’s the one that’s meant for business acquisitions, start-up capitals, working capital, things to that nature. A tremendous program but it does have a fair amount of fees. It’s kind of the cause of doing business candidly.
When a bank won’t lend you the money on reasonable terms, you can do the SBA route, get a 7A loan and yes, you pay a little bit more in fees perhaps but if you’re business is profitable, if you’re able to get going, it’s all going to be good at the end.
Ivy Hartman: Okay Chris, is there any other advice from your experience that you’ve gotten from your clients on tips or miss or misperceptions about the SBA loan programs?
Chris Hurn: Well, the other one that I hear a lot is about the speed. People have this perception takes, six to nine months to do an SBA loan. In fact, that’s not the case at all. It was 10, 15 years ago but with sophistication, technology streamlining the process, any more our fastest loan close we’ve ever had is about 27 days. I would say our average is 45 to 60 days. Any competent commercial real estate broker is going to write real estate contract for 60 to 90 days to close anyway. Any competent lender can actually going to close and done within that time period. It does not take six to nine months, if you desperately need to close in 45 days, as long as we can line up all the stars correctly and you can actually hustle and hitch your part of the process done. Yes, any business owner can get financing done very, very quickly.
Ivy Hartman: Now, you compare over a decade of experience with small businesses and you started your own business in order to help small businesses, really specifically with SBA loans, talk about that.
Chris Hurn: Well, specifically with the 504 experience, yes, we always in lead with that, we’re the only commercial lender nationwide that always lead with that. And only when someone doesn’t qualify or isn’t illegible do we offer a conventional commercial loan or commercial stated loan. We only have five products, it’s those three and then we actually do a little bit of multifamily financing and a little bit of investor financing.
But generally speaking 90 some percent of our borrowers utilize the 504, even the most financible, most bankable clients out there, they just wisely choose to utilize the 504 which is I’ve like I said before is the best kept secret to commercial real estate financing.
Ivy Hartman: Were you finding just that few business owners really knew about the program?
Chris Hurn: Oh yes, even to this day most business owners don’t have a clue about this and the reality is most bankers don’t like to do the program.
In its simple economics, it’s a little more cumbersome to the banker and it’s less money for the banker because the banker would rather do an 80% commensurate loan than a 504 loan whether they’re going to have 50% first mortgage or trustee. Okay so it’s a simple human nature. They make less and it’s harder on them. It’s no wonder they don’t promote the program very much.
We do these loans everyday and we’ve become the nationwide experts at it. It’s not a problem for us. We like to provide the best product out there for small business owners because we know they’ll tell their friends about us, tell their advisers about us, no comeback in a couple of years, they’ll buy another building through us.
Ivy Hartman: Well, no wonder you’re on the Inc 500 West for one of the fastest growing company, that’s the Mercantile Commercial Capital Group. Chris Hurn has been joining us today, thanks for being here Chris.
Chris Hurn: Thank you.
Ivy Hartman: Now if you want a contact to the 504 experts, you can do that through their website at 504Experts.com. You can also look for more helpful segments and articles from Chris right here on SBTV.com where Small Business Is Our Only Business.
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