Small Business Today Magazine AUG 2014 SIVER STONE EVENTS | Page 28

EDITORIALFEATURE

Financing Single-Purpose,

Small Business Real Estate
By Bruce Hurta

S

mall business owners sometimes face
challenges with financing single-purpose (or special-purpose) real estate
from which they operate their businesses. The reason is because of the limits a special purpose design places on the
marketability and value for the lender in the
instance of a foreclosure on the property.
Because collateral is offered by a borrower
to enhance the lender’s chance of recovery on the loan if the borrower defaults on
payments, marketability of the collateral can
detract from the quality of the loan application for the lender’s approval. The SBA
government-guaranteed loan program for
small businesses is a suitable alternative for
small businesses seeking the best financing
for their small business property. Because
an SBA loan is classified as a business loan,
rather than a real estate loan, the lender
tends to rely more upon the financial performance of the business and the credentials of its owners than it relies upon the value of the collateral. The U.S. Small Business
Administration makes it very clear that the
SBA loan program is not a collateral-driven
loan program. While offering valuable collateral is helpful in gaining approval for an
SBA loan, collateral is not always required
to approve an SBA loan.

Examples of single or special purpose
properties include, but are not limited
to the following:
• Hotels
• Preschool and child daycare facilities
• Gas stations, truck stops, and convenience stores
• Restaurants
• Car washes
• Assisted living and nursing facilities
• Skating, bowling, and other entertainment venues

This condition, among other challenges faced
by small business borrowers, is one of the reasons
the SBA government-guaranteed loan program exists. The partial government guaranty, which the
lender receives for
originating an SBA loan,
allows the lender to
assume more risk in the
transaction.
As you can see from this short list of specialized facilities, they are designed to primarily accommodate only one type of business.
For another type of business to operate
there, additional construction costs and expenses would be required to modify the facility. Potential buyers, in the case of a foreclosure, would be limited by this condition. As
a result, some banks and other types of lenders will require higher down payments and
stricter underwriting guidelines for financing
special purpose properties.
This condition, among other challenges
faced by small business borrowers, is one
of the reasons the SBA government-guaranteed loan program exists. The partial
government guaranty, which the lender
receives for originating an SBA loan, allows
the lender to assume more risk in the transaction. As a result, SBA loans provide lower
down payments, longer repayment terms,
and easier qualifying criteria than conventional bank loans. The small business owner,
who might have been precluded from real
estate ownership due to more restrictive
guidelines for single-purpose properties,

26 SMALL BUSINESS TODAY MAGAZINE [ AUGUST 2014 ]

is often now able to enjoy the benefits of
small business real estate ownership. Those
benefits can include:
• Eliminating business risk caused by future rent increases or non-renewal of
a lease
• Owning improvements made to the
property rather than giving them to
the landlord
• The opportunity to build eq Z]H[