With commercial real estate values and rent rolls on the decline in many markets, investors looking to refinance -- or buy new properties -- now face a much tougher environment than they have in years.

Lenders have tightened down hard on underwriting standards. They want to see everything from years of income tax returns to details on investors' personal debts. And they often won't lend more than 60 to 70 percent of a property's value - if they lend at all.

But smart investors are beginning to check out a financing source they rarely, if ever, considered in the past: Small Business Administration loans.

Compared with bank loans, SBA financing often offers higher loan-to value ratios or LTVs, plus lower rate structures. And they're not just for acquisitions. They can be used for refinancings as well.

"A whole lot more (income property owners) are eligible than they might think," says Kevin Stone, CEO of New York City-based Kevin Stone International, commercial real estate mortgage brokers.

People hear the words, "small business", and they say, hey that's not a fit with what I'm doing.

But in fact, Stone told RealtyTimes last week, SBA real estate loans aren't just for people looking to start up new businesses.

They do require owner-occupancy of part of the space in the project, but not necessarily a huge share. For example, Stone is putting one client who owns a small retail strip of 12 units into an SBA loan. The client leases out 10 of the units and occupies two for his own business purposes.

SBA "is now my first option" for clients with good credit, solid locations and revenues, said Stone, because of its favorable rates, and LTVs of 75 to 80 percent. Better yet, SBA is "knocking on the door" looking to do deals.

If commercial clients don't fit the SBA mold, then they're likely to pay a little more and get a lower LTV from regular commercial banking sources.

But if they can't pass the banks' strict underwriting rules, where do they turn?

To the so-called "hard money" segment of commercial financing, says Stone, where deals can be closed in a week or two, rather than months, but where rates are steep - often in the double digits - plus four to five points on top of that.

But whether it's SBA, banks or hard money sources, Stone says that even in a brutal market like today's, there are always alternatives for investment property owners who need to refinance.

They just need to be a little creative about where to look.

Published: September 11, 2009

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consumer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.