Irvine, CA, October 22, 2009 --(PR.com
)-- Scientific Capital Group arranges a 3 MM SBA 504 loan for the acquisition of a Comfort Inn in Virginia. The project was financed as 80% Loan to Cost (LTC) with the first position financing through an FDIC lender and the 2nd position loan through the SBA. Previously the 504 loans could be used for hotel acquisition at 85% Loan to Value (LTV) but starting this year, the 85% financing can only be applied to business expansion in which the ownership structure of the expanding business remains unchanged, hence any start up business has to inject 20% into the acquisition.
While the secondary market is showing no interest in buying 504 first position loans from the lenders, the 504 availability will continue to suffer. There is little hope that the lenders themselves will be willing to portfolio these loans. As long as the lenders’ liquid assets and capital remains low, the government deservedly continues its relentless audit of the lenders and requires them to raise more capital and to lower the loan to capital ratio, the unemployment rate keeps climbing, and the economy does not show signs of bottoming, the lenders will take extreme caution adding to their books any more hospitality loans.
There is however a very bright light at the end of the tunnel for the mid-range hotel owner/operators, says Ramin Mostaan the founder of Scientific Capital. As the secondary markets froze early this year, the SBA incorporated a securitization of the first trust deeds of the 504 loans into the American Reinvestment and Recovery Act of 2009 but this program has not yet been implemented. With securitization of the first position loans, the banks can sell the guaranteed portion of the loan in the Wall Street as they are now selling the SBA 7a and the USDA loans. If implemented correctly, this program will open the credit market significantly for many qualified hotel owners/buyers.
Scientific Capital Group, Inc. (www.scicap.com) is a hotel financing advisory and brokerage company located in Irvine, California offering services throughout the 50 states and can be reached at (949) 477-5000.