Leslie McCarthy is moving her insurance business from Placentia to a 7,500-square-foot office she bought in Fullerton.
It’s a move she’s wanted to make for years.
During the real estate boom, buying a building was out of reach as prices soared, according to McCarthy.
The real estate crash made buildings more affordable. But then getting financing got tougher for small businesses after the financial crisis of late 2008 and early 2009.
McCarthy was helped by provisions of the Small Business Jobs Act of 2010, which President Barack Obama signed into law in September.
The legislation extended a fee waiver for Small Business Administration loans through the end of the year and upped the maximum loan amount from $2 million to $5 million.
It also opened SBA 504 loans—often used by small businesses to purchase or put up buildings—for refinancing of business mortgages.
The goal of the $42 billion jobs act is to help small businesses, such as car shops and restaurants, expand and hire workers amid persistently high unemployment.
McCarthy, owner and president of Fullerton Insurance Service Inc., put down a relatively low 10% on her $980,000 loan.
SBA loans like McCarthy’s are done by banks and are backed by the federal government. In McCarthy’s case, the SBA guarantees 90% of her loan.
That allows banks to make more loans with little risk, while borrowers keep more cash in their businesses.
McCarthy said her loan payments are comparable to the $9,500 monthly rent she was paying. Her new space is nearly 3,000 square feet larger.
The job act’s extension of waived fees saved McCarthy $10,000, she said.
Fees on SBA loans and a lower 75% federal guarantee for some loans are set to return Jan. 1 unless the lame duck Congress extends the job act’s provisions. The fee waiver has been extended a few times since being introduced more than a year ago.
Waived Fees
The fee eliminations have been “paying off,” said Mark Hogan, a loan officer in the Irvine office of San Diego’s CDC Small Business Finance, which worked with Fullerton Community Bank to provide McCarthy’s loan.
CDC, which works with lenders in California, Nevada and Arizona to provide SBA loans and other financing, approved $36.5 million of SBA 504 loans in November in Orange County, more than double from October.
SBA 504 loans, named for a section of the Small Business Act of 1953, typically are used to for real estate, machines and other business equipment.
Raid Khoury said he saved $30,000 in fees on a $4 million loan he got in late November from Bank of the West and CDC to buy his Newport Beach sports bar.
“Because interest rates are so low we can afford to overpay for it,” said Khoury, co-owner of the Classic Q Billiards and Sports Club, which features pool tables, flat-screen TVs and an event room.
The financing is set to save Khoury more than $60,000 a year, he said. Mortgage payments will be less than his monthly rent.
The savings should help profits at Classic Q, which took a hit in the past two years as bar patrons stayed home or spent less.
“We haven’t made a great deal of money,” said Khoury, a self-proclaimed sports nut who bought the business in 2007 with a partner. “We’ve held our own. Hopefully when the economy gets better we’ll see more business.”
Ron Hart, president of Garden Grove-based Power Train Industries, said he knew he had to act fast to get a loan without fees. As soon as the legislation was signed, he said he called his banker at Wells Fargo & Co.
A few weeks ago, Hart secured a $400,000 loan on a building in Springfield, Mo., to expand distribution for his drive shaft supply business and car repair shop, saving $9,000 in fees.
The extended fee waiver “tipped the scale,” he said.
The company, which grew from a small shop in the late 1960s to six locations in Orange and Ventura counties, Missouri and Texas, sells products in every state. About 70% of Power Train’s $7 million in annual sales is generated through drive shafts.
Hart said he was attracted to the SBA loan’s 25-year fixed rate, which beat a five-year conventional loan offered by another lender.
The savings will help offset some of Power Train’s lost limousine business, which has plummeted 70% in the downturn, he said.
Heather Endresen, who was hired in November to lead Union Bank’s SBA and government lending division, said the bank is processing several SBA loans topping $2 million for businesses.
The jobs act targeted the right segment of the market and is making a difference for small and midsize businesses, according to Endresen.
“This really seemed to hit what was needed,” said Endresen, who’s based in the Irvine office of the San Francisco-based bank. “It opened the door for more companies.”
Rick Benito, who runs the SBA 504 program in the West for Bank of America Corp., said the higher maximum loan size and a refinancing option on real estate for businesses will have the greatest impact.
“Some business owners will need to refinance as an existing loan matures,” he said.
