Are you looking for new ways to find new business opportunities? Have you considered attempting to go after federal contracts? In seeking new marketing avenues, there are two well known federal certification programs that offer new business opportunities to qualified small businesses. We will examine the HUB Zone and the SBA 8a programs so you have a overview of which program might be a good match for your business. These are two established Small Business Administration programs that support small business development.
Federal HUB Zone
The Federal HUB Zone program is administered by the Small Business Administration (SBA). The purpose of the program is to help small businesses effectively market themselves to prime contractors (large private corporations like Boeing, Lockheed Martin, IBM, Northrup Grumman) and federal agency (Treasury, Department of Commerce, IRS, Military, Veteran's Administration) procurement departments.
The HUB Zone program targets business owners who operate their business in depressed areas to get access to federal agencies. This program helps small businesses located in urban or rural areas to qualify for sole-source other federal contract benefits. The underlying purpose of this popular program is to encourage economic development and provide increased local employment opportunities.
Eligibiilty for HUB Zone certification includes:
(Note: If you live in Texas, there is another state level program, Texas HUB which has nothing to do with the federal program. While they both target historically underutilized business owners, the Texas HUB applies only to Texas companies and Texas state contracts.)
SBA 8a Program
The SBA 8a program is administered by the Small Business Administration (SBA). The purpose of the program is to help women, minority, and service disabled small businesses effectively market themselves to prime contractors (large private corporations) and federal agency procurement departments. Under the program, the 8a certified company is assigned to a Business Opportunity Specialist who advises and coaches the business.
Eligibility for SBA 8a certification includes:
In the past few years in the real estate market, the Buyers have finally gotten the upper hand.
And the one thing buyers are demanding is money! Money in repairs, money in upgrades, money in closing costs, and sometimes, money in their pocket.
The most surprising thing in my mortgage business, to me, has always been how little money people have saved.
Most loan programs simply require lenders to verify the borrower has two month's worth of house
payments in cash reserves when they close escrow. The majority of people I deal with have
trouble meeting that condition.
Forget down payments. They don't have it and that's why 100% financing is so popular. But how
about the 2%-3% in closing costs required to purchase a home? They don't have that either.
Enter seller contributions.
A seller contribution is when the seller of a home puts up some or all of the money needed toward
the buyer's closing costs. Seller contributions can be negotiated at the time of a home purchase
by having the seller pay closing costs rather than a reduction of the home sales price.
Sometimes you can do a combination of both.
A lot of people are creditworthy of having a mortgage but they just don't have a lot of money in
the bank. In these cases, seller contributions can mean the difference between a sale and no
sale.
A Seller contribution is very easy to do. You simply disclose it to the lender. In most cases,
these contributions range from 3%-6% of the purchase price. Some 100% financing programs
now allow seller contributions up to 6%. It used to be capped at 3%.
Ever wonder how the homebuilder offers to make the buyer's payment for a year? They use the
seller contribution to make these payments out of escrow. If you buy a $300,000 home and the
builder is allowed a 3% contribution or $9,000 and your payment is $1,500 per month, there are
your six months in payments.
Sometimes seller-contributed closing costs can help the borrower get a better interest rate by
buying it down, making the home easier to qualify for.
Ever wonder how a homebuilder can offer 4.750% interest rates when the market is at 6.000%?
They use seller contributions to buy down rate. Figure that every .250% of rate buy-down costs
1% in points small business funding or a loan discount fee. If the rate today is 6.000% and you want to buy it down to
4.750% that would cost 5 points in discount fees. You still have 1% left over for closing costs.
Are you offering these marketing possibilities to your clients? You need to get with your preferred
lender to find out how you, too, can compete with the builders. Don't just use seller contributions
to cover closing costs. You too can offer a home with a rate in the high 4.000's%.
Here is the catch: The amount of seller contribution cannot exceed the actual amount of closing
costs and it CAN NEVER be given back as a cash incentive to the buyer.
This is where the dark side of my newsletter begins....
In the summer, I did a loan for Jerry and Lorraine buying their dream home of $850,000. The
home had been on the market for around three months. They needed 100% financing and
during the loan application, Jerry said to me, "Not only is this house a great deal but the seller is
giving me $50,000 cash back at the close."
Jerry was planning on using this money for window coverings, new flooring and a plasma TV for
the family room.
I cringed. It was painful to inform him that this was illegal. His agent hadn't told him this. He still
went forward with the transaction at a reduced sales price of $800,000. A few months later we
were able to still get him new flooring and window coverings through a home equity line of credit.
The new plasma TV couldn't wait. It had to go on his credit card.
Cash-back is an American tradition. Cash rebates are offered on all sorts of products. Some
credit card companies will give you cash-back on the purchases you make. In Las Vegas, we
are used to giving out cash for better services at hotels, restaurants, clubs, and to avoid long
lines.
However, cash back in a real estate transaction is illegal from a lending perspective.
Seller contributed closing costs, which are legal, are not paid in cash but as a credit from the
seller to the buyer. They are fully disclosed and paid directly to the third parties through escrow.
This is different. I am talking about getting a nice big fat wad of cash or a big check at the close.
Here is how it works. Johnny Vegas goes out looking for a house. He finds one he likes listed at
$350,000. He offers the seller $375,000 but he wants $25,000 to be kicked back to him at the
close of escrow. Every one makes out on this deal! The buyer gets a big payday or new TVs or
furniture or flooring. The seller gets his asking price. The real estate agent gets a bigger
commission. The loan officer gets a larger loan and an increased commission. The lender gets a
more sizable loan with more interest over 30 years. And the neighborhood keeps its value in a
declining market.
So what's wrong with that? It's a buyer's market. Home builders are offering incentives as high
as $75,000. So why can't you?
For one, the home builder does not offer incentives in cash. They offer incentives built into
upgrading the property like flooring, pools, landscaping and sometimes, house payments for a
year paid though escrow, or closing costs. Never cash back.
The problem with cash-back is that this transaction has defrauded the lender. The lender is
tricked into making a loan that now carries incredible risk. The buyer has none of his own money
in the property but has already made $25,000. The loan amount is higher, so if things get a little
tight for the buyer, and that's a greater possibility, the buyer will simply walk away from the
home.
If he walks away from the home, he does so with an artificially inflated value, which, in turn, raises
property taxes for everyone and leaves the lender with a home they will lose a substantial amount
of money on in the resale market.
Major sub-prime banks with billions of dollars in loans are closing their doors. Many of these
companies ran out of cash needed to repurchase loans that they had sold in the secondary
market because the original borrowers had defaulted. Schemes like cash-back at close are, in
large part, to blame.
For this to work an appraiser has to come in above the original asking price. This is a home that
is now very likely upside down at close. The loan amount is higher than the actual value.
And what stops someone from going out and buying 10 houses concurrently in this scheme,
adding $50,000 to each home, making $500,000 and then simply walking away leaving the banks
with foreclosed properties that are upside down? It's a great business plan for someone who
doesn't care about having their credit ruined, running from litigation and possible criminal
prosecution, or the big-picture, economic implication of large sub-prime lenders going out of
business.
There are people out there right now doing this. That's why banks are so strict about this.
The rule of thumb is that if a lender is not completely informed of ALL of the terms of the
transaction in writing, then the transaction is illegal.
I have been personally