Q: I tend to be somewhat debt adverse and as a result have paid down my commercial mortgage faster than required. I’ve always thought I could borrow the money back if I needed it and in the meantime was reducing my interest expense.
However, I now find myself asset rich and cash poor. I have some great opportunities in front of me, but need the working capital to purchase inventory to meet the demands. To my surprise, I’m finding it difficult to pull equity out of my building. Any advice?
A: Isn’t this odd? Companies such as yours survive the recession and pay down debt and now find they cannot build on their strength.
We are finding many borrowers just like you in a similar position. A recent study from Credit Suisse found that over $15 billion of small commercial mortgages (under $5 million) are coming due in the next few years. Business owners may have a hard time meeting payments or refinancing due to falling real estate values and the fact that their companies are still recovering from turbulent economic times.
But it may only take a phone call for you to clear the hurdle in your path. Congress put a temporary program into place that allows the Small Business Administration’s 504 loan program to be used to refinance commercial real estate at attractive terms. You can finance up to 90 percent of the value of the real estate through this program. If you use the proceeds to pay off the existing mortgage, the balance can be used for working capital.
The 504 refinance program could be the very thing to bridge the gap between the value of your assets and your needs for working capital. You need to have owned your property for at least two years and acquired it with a commercial loan. You qualify even though you paid off your debt. You must also occupy at least 51 percent of the property, be a for-profit company and have a tangible net worth of less than $15 million and after-tax profit of less than $5 million for the last two years.
Most important: This program expires in September, so it would be wise to act now.
Many small businesses fit your profile. Those that do should contact any bank lender and ask about the SBA 504 refinance program. If you don’t get an appropriate answer, call one of the certified development corporations in your area to discuss this further. They can be found at www.nadco.org.
I hope you are successful. We need your type of businesses to succeed and flourish in central Indiana.
Wojtowicz is president of Cambridge Capital Management Corp.