Commercial Tip of the Week

Post date: Dec 09, 2010 5:9:38 PM

Why Am I SO Excited About Commercial Next Year?

Because the market will be UP in volume from this year and it will be pretty broad based and across the board.  Many factors are playing into this:


SBA 504 Refinances – Yes, this got put into law in 2010 but we are still waiting for the SBA to publish its Standard Operating Procedures (SOP) for how the refinancing will work.  What we do know is that it will allow high LTV refinances for owner occupied businesses, many who cannot refinance right now because their property values have fallen.  This opens up a tremendous new revenue stream.  Most experts feel they will publish the SOP in January so we should be off to the races then – HUGE – possibly a 30% increase in volume from this one program!


Conduit lending is projected to double this year as more and more lenders tip toe back into the game. This pushes more lending opportunities down to the rest of the channels.


Better financials mean it will BE EASIER TO APPROVE LOANS NEXT YEAR.  You see, underwriting in Commercial is not done by an automated system but by live underwriters and real people in credit committees.  The people factor matters.  And the most recent tax year is the most heavily weighed piece of the underwriting puzzle.  In 2010, underwriters were looking at 2009 tax returns that were generally down from 2008 and so, even though year to date P & L’s looked better, there is still a stigma to declining sales and/or profits on the returns.  But I have seen thousands of businesses this year and almost all of them are up from 2009. That means that when underwriters underwrite loans next year, they will see the most recent tax return for 2010 that is UP from 2009.  It changes the perception of the company in the underwriters mind.  Our in-house lending arm is looking at deals this way, if you made it through the last few years and your 2010 was up from 2009 – you are a good credit risk.  Many other lenders will think similarly.  You don’t hear much talk about this yet but trust me; it will make a big difference in approvals next year.


Generally, small businesses are bullish on next year.  Small business lending is up, we are seeing a huge spike in people applying for loans, and many people are leaving corporate America for good and starting their own business by rolling over their IRA or buying into a franchise.  30% of my closings this year were to new start-up franchise businesses or rolling IRA’s for people to start their own business.  I expect that to increase next year.  Yes, there are issues – unemployment, inflation (I know, the Government says there is none but have you bought gas or milk recently?), and more.  But small business owners, though tight on finances, are optimistic for next year.  At least the few hundred I have spoken to and I wager, that is a safe cross-section of the good old USA.


For all these reasons and more, commercial closing volume should be up next year.  For those who commit to commercial, they will be in a market that is growing and that increases your chances of success.  Maybe now is the time to commit to adding commercial to your business model?  The time has never been better!