Automotive Property Finance – A Current Look

Borrowers purchasing or refinancing an automotive service property (repair, gas station, oil change, etc) will face limited options compared to just 3-6 months ago. As the residential subprime mess continues to seep into all markets, innovative and creative options have either gone into “hibernation” or have been tighten to the point that only the strongest qualify.In terms of what is still readily available for automotive borrowers – think SBA 504, SBA 7a (there are fixed rate options available and you can use this to refinance), and 30 year fixed.SBA 504Created only for purchases, borrower can still expect 85% financing on both straight purchases and or construction/rehab loans. The main benefit to this program include the high leverage and that the rate can be fixed for as long as 5, 7, 10 and a few lenders offer 25 year fixed rates. Also rates are normally very competitive. For example, currently (April 2008) borrowers can expect a blended rate in the high 6′s.Despite what many borrowers believe the SBA process has been greatly improved and borrowers can realistically expect their loan to close in 45 – 60 days, on par with all commercial mortgages.SBA 7aWhile the 504 program is geared generally for loans in the $2,000,000 – $7,000,000 range, the SBA 7a program is geared for smaller loans with a little more “hair”. Borrowers can use projections rather than just historically financials to qualify. Debt coverage ratios can be as low as 1.1 and 90% financing is available on both purchases and refinances for most automotive properties.The most common objections to the 7a programs are 1. The program normally comes with a floating rate and 2. The SBA guarantee fee of 2.75% of the loan amount is too expensive. However it’s critical that the borrower realize that the terms of the loan are negotiable. There are 2 national banks that we work with for example, that structure this loan as a 5 year fixed and the banks pay for the guarantee fee in order to win over deals for most borrowers.30 Year FixedThis creative loan was widely available for automotive borrowers/properties just 5 months ago, but has become restricted. Refinances are now capped at 70% loan to value and cash out refinances are capped at 65% Borrower credit scores need to be at least 680 and financials need to reflect a 1.25 minimum. In addition properties older than 10 years will have a tough time getting closed.Despite the challenges, the 30 year fixed option is a strong program and worthwhile for the borrower to investigate if they like the idea of having long term fixed rate financing.