CIT Group's Chris Reilly says the Small Business Jobs Act contains much more for small business owners than mere tax credits and incentives—higher SBA loan ceilings
Only one-third of U.S. small business owners consider purchasing real estate a "great" or "substantial" opportunity, according to a survey with just over 300 respondents released this month by CIT Group (CIT). Meanwhile interest rates and commercial real estate prices are at historic lows, says Chris Reilly, president of the company's Small Business Lending division. Reilly spoke recently to Smart Answers columnist Karen E. Klein about lending and real estate opportunities, the Small Business Jobs Act, and her belief that small business owners should take a more progressive, opportunistic approach to running their companies. Edited excerpts of their conversation follow. Your study showed that only 6 percent of small business owners have purchased one or more properties during the past two years. And 52 percent said they haven't thought about making an acquisition. Is it surprising that more small and midsized companies haven't taken the opportunity to upgrade? I don't think we were terribly surprised by the results. Small businesses have been hit harder than anybody else in the recession. Thirty-six percent of small business owners we surveyed said that the biggest barrier they faced in securing a loan to buy commercial real estate was current economic conditions. And 19 percent said they couldn't afford a down payment. What about refinancing current mortgages to lower interest rates? Only 13 percent of small business owners indicated that they were "very likely" or "somewhat likely" to consider refinancing. But we think that's going to change with the economic indicators improving. We're encouraging businesses that are looking to expand over the next two or three years to consider purchasing that piece of property that a couple years ago may have been out of reach for them. Eventually interest rates have to go up, but real estate values are predicted to be low for a while. Buying now may be cheaper than leasing in the long run. And refinancing an existing mortgage with an SBA loan could bring monthly payments down meaningfully, which is like putting money into a small business owner's pocket. The new Small Business Jobs Act allows some small business owners to refinance commercial mortgages using the SBA's 504 loan program. Most of the 306 non-home-based business owners you surveyed said they weren't familiar with the legislation. The survey was done in early September, before the small business jobs act passed, and 52 percent said they did not know what it was or how it might impact their small business. That was surprising to us, with everything we've been hearing about the lack of access to capital over the last couple of years. I will say, though, that once this legislation got signed by the President, it did have an impact. Our phones were ringing off the hook with people asking eligibility-type questions. What kinds of questions are people asking? We still get people who think they can get 100 percent financing, even with an SBA loan. Those days are gone. You have to be willing to put skin in the game, no matter how the loan gets done. But hopefully this survey will help educate small business people that the jobs act had a lot more in it than just tax credits and other incentives. It did some historic expansion of the SBA's fundamental programs—particularly increasing loan sizes dramatically, from $2 million to $5 million. What advice do you give entrepreneurs looking for credit right now? If your business is still standing, there are probably good reasons for that. So if you have a decent survival story, that's what you should be telling your banker. You need to have annual, if not interim, financial statements with you. The days of shoebox accounting are long gone. And it doesn't have to be a masterpiece, but you have to have a decent business plan where you tell that story of how you've survived and how you compare to your competitors. Finally, I'd say lenders are going to want you to stick to your knitting. This is not the right environment to be going way beyond your core business strategy.