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Small Firms Can Get SBA Real Estate Loans

San Diego small businesses don’t have to be tiny to qualify for the Small Business Administration’s owner-user commercial real estate loans , and they’d have to be huge not to qualify at all.

“If you are a Fortune 1,000, you will qualify,” said Ken Rosenthal, senior loan officer for CDC Small Business Finance, which administers the SBA’s 504 loan program.

A company’s net profit, after tax, averaged for the last two years, can’t exceed $2.5 million, in order to qualify.

“You have to be pretty darn huge, or have a bad accountant,” said Rosenthal. “I see one deal a year that doesn’t qualify. San Diego is the home of small business, so not many are too big.”

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The commercial properties the small businesses can qualify for are not necessarily Popsicle stands either.

“Small doesn’t mean ‘mom and pop,’ ” he said. “It can, but typically the smallest is $250,000 for the property, and good luck finding something that small. $1.3 million is the average project cost. But our deal size goes to $20 million.”

Ninety percent fixed-rate financing is available on office, industrial and medical buildings, with the bank holding the first mortgage for 50 percent of the total project, the CDC holding the second mortgage for 40 percent, with the borrower coming up with 10 percent as a down payment, said Rosenthal. The CDC money is guaranteed by the SBA.

These days, he said, it’s good business to buy.

“Mostly, companies that are renting have the opportunity to buy a building, and the mortgage payments are typically the same or less as rent,” said Rosenthal. “Because rates are so low, you’ve got lower payments. When you factor in the appreciation and write-offs, the net costs are definitely less than renting. It’s amazing to see the difference.”

While the 504 loans cover all types of commercial real estate, office condos are emerging as a hot commodity.

“Three years ago, we didn’t do any office condos,” said Rosenthal. “But this time next year, a third will be office, industrial and medical condos. There are so many units.”

Small businesses that are contemplating taking the plunge and buying property should do their homework and get down to the basics, cautioned Glenn Arnold, a broker with San Diego-based Grubb & Ellis BRE/Commercial.

“When people don’t have a sense of clarity on when to buy, start with the fundamentals,” he said. “What are the occupancy costs on an after-tax basis to leasing versus owning? That is the most critical question.”

Lee Meyer, an independent insurance agent who owns his own agency in the South Bay area of San Diego, is taking advantage of his parent company’s loan program. He’s buying property in Marin County-based Venture Corp.’s $40 million office condo development in EastLake, now under construction in the South Bay , three units, about 1,850 square feet each, two to sell or rent out, one to occupy, ranging in price from $456,000 to $550,000.

“I’m almost doubling my usable space for the same net costs I’m paying right now, and that doesn’t include appreciation,” he said.

“When you’re a tenant, you have a lease and the terms of the lease benefit the owner, not the tenant,” said Meyer. “You have no wiggle room, no real rights. These multi-page documents are engineered by lawyers that leave you, as a tenant, with very few options. You don’t have anything except a tax deduction for rent. In ownership, you call the shots.

“I would have bought a long time ago, if I could have found the right thing,” he added. “There aren’t that many condo projects around , not in South Bay.”

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