New SBA loan rules a ‘huge benefit for borrowers’

Like most small business owners, Tim and Katie Hall, owners of Silver Bear Swim School, wished they had the ability to buy a building they operate in rather than continue to pump out rent money.
So when the Halls recently got the opportunity to purchase one of their swim school facilities in Northern Nevada, they jumped in with both feet.
Under new rules released by the U.S. Small Business Administration last month, small business borrowers like Silver Bear can refinance their existing guaranteed debt on real estate into an SBA 504 loan.
These loans assist small business owners in purchasing commercial real estate for as little as 10% down, according to the Nevada State Development Corporation, the largest SBA 504 loan provider in Nevada.
“The fact that a little family-run business like ours has the ability to purchase the building that we operate in is a game-changer for our business and for my family’s long-term financial health,” Hall said.
Taking advantage of the new rules, the Halls refinanced their SBA 7(a) loan into an SBA 504 and purchased their property in Sparks for $3.3 million at a fixed interest rate of about 4%, Hall said.
Notably, most SBA 7(a) loan rates on properties are adjustable and typically in the range of 5% to 6%, according to the NSDC.
“It will be a huge benefit for borrowers where they are at higher interest rates or variable rates,” said Sandy Gordon, vice president and business development officer at the NSDC Reno office. “The variable rate might be good now with everything so low but sooner or later we all know that the rates are going to increase.”
To that end, Hall estimates that refinancing will save close to $30,000 a year. Since Silver Bear’s property is considered “special use” because of its swimming pool, Hall said they had to put down 15% — which equates to $495,000 — on the $3.3 million building.
“It’s hard to pass up a very unique opportunity like this,” Hall said. “Traditionally, it wouldn’t be possible for someone like me and my wife to buy a $3 million building, so the SBA (504) program is pretty phenomenal.
“With owning a piece of property, I know that the money I’m spending that would normally go to rent is now going to build equity in a piece of property that I own.”
The Halls’ building in Sparks is one of their three open facilities. The husband-and-wife entrepreneurs also have swim schools in South Reno and Truckee.
And their business is growing. The Silver Bear Swim School owners are on track to open an operation in an existing building in Northwest Reno by the end of the year, and have broken ground on a new facility being constructed in Northern Utah that they expect to open next spring.
Hall said Silver Bear’s revenue over the past 18 months is up 10% to 15% over pre-pandemic business.
“After the first eight to 10 weeks (of the pandemic), people were out and wanted to get their kids in activities, so we’ve been slammed ever since,” said Hall, noting the region’s population growth has also played a role in their growing business.
Gordon said the SBA’s new program was likely prompted by the industry’s lobbying efforts to allow small businesses to refinance government loans into SBA 504 loans.
“Historically, 7(a) loans have been used to pay off 504 but the 504 was not allowed to be used in paying off a 7(a), so this has leveled the playing field,” Gordon said.
So far, NSDC says it had five refinance loans approved in the fiscal year 2021.
“With the new program, we feel our processing of refinance projects could increase significantly,” Gordon said.
Not all small businesses, however, are eligible for the new SBA program, she added.
Chief among the terms and conditions, the new program applies to applicants that have been in operation for at least two years. In other words, startups and new businesses less than two years old are not eligible.