Landlords Could Benefit from Additional SBA Loan Relief

SBA Loan ReliefAn apparent national misconception holds that the nation’s landlords mostly are large, wealthy and self-sufficient enterprises that can go months at a time without rental income. The global COVID-19 pandemic and lockdown orders in various states have pushed a demand for halting eviction proceedings.  

The Centers for Disease Control issued a national moratorium on evicting tenants for non-payment of rent through March. Many states likewise have eviction moratoriums in place, and that has a lot of landlords scrambling to stay afloat. The costs associated with property taxes, insurance, maintenance and repairs, and utilities all continue to pile up. among other debts.  

Evictions are the one tool that landlords have to enforce contractual agreements with tenants and collect rent in a timely manner. Without the power of eviction, many landlords are facing their own personal housing crises. A Small Business Administration (SBA) loan backed by the federal government might be the short-term solution. 

Eviction Moratoriums Are a Moving Target 

While the national and respective eviction bans are supposed to be temporary, the expiration dates often get extended. Much like the initial 15-day lock downs announced almost a year ago, many of the eviction bans wind up receiving perpetual extensions at the federal and state levels. That is encouraging many renters to skip out on paying their landlords, and many property owners say that violates landlord rights.  

The U.S. Census Bureau reports about 20 percent of rented homes in the country are behind on rent. That is about 10 million rentals on which the tenants owe an average of $5,586 in past-due rents. The state of New York reports $1 billion in past-due rents owed to rental property owners there.  

Federal Relief Might Help 

Pres. Joe Biden says he wants to extend the eviction ban until the end of September and provide $30 billion in rental help for imperiled tenants. The rental assistance could help many tenants catch up on past-due rent, but an eviction ban extended into September would negate at least some of that effect. Instead of encouraging those who are behind on their rents, the ban will convince many that they can skip out on rents for many more months while getting even more money from the federal government.  

The Small Business Administration is supposed to offer federally backed loan assistance to small business owners. That includes owners of small rental properties who have tenants averaging more than $5,000 in back rent. But obtaining SBA loans has been difficult for many small business owners who are struggling with the negative economic effects of the COVID-19 pandemic and lock downs. The proposed $900 billion relief package awaits further negotiation and approval in the House and Senate in identical form before Biden can sign it into law.  

Small Property Owners with Slim Profits 

Small business owners, like the traditional “mom and pop” enterprise, own 77 percent of all smaller two- and four-unit rental properties. With an average investment return of about 9 cents on the dollar, even a couple of months’ worth of lost rental income could put many in financial distress. Late mortgage payments and rising ownership costs threatens to put many of them in the proverbial poorhouse.  

About 34 percent of owners of smaller rental properties are retirees who depend on the additional income to help pay for healthcare and other living costs. Most of those retirees do not have highly diversified incomes and need to rely on receiving continual rental income to maintain a decent lifestyle and good health.  

Those owners of the smaller duplexes, four plexes and other small rental properties also receive about 17 percent less in rental income than owners of single-family homes or very large apartment complexes.  

Potentially Worsening Economic Turmoil 

The National Multifamily Housing Council says apartment rentals annually contribute about $3.4 trillion to the nation’s total economic impact while supporting 17.5 million direct and related jobs. As the apartment rental industry goes, so goes the nation’s economy, and the near future is not bright, the council reports. The $30 million in proposed rental relief would be a very welcome sign of help for rental property owners, but the eviction ban imperils even that bit of anticipated relief.  

Easier access to the SBA loans approved as part of the prior CARES Act of 2020 would be a more reliable solution for owners of smaller rental properties. But with too many hoops to jump through and rents falling further behind in many locales, the SBA loans are proving to be unreliable.  

Many small business owners say the SBA wants more collateral to partly secure the loans that are supposed to be backed by the federal government. That makes it very difficult to count on obtaining relief while eviction bans continue to stay in effect with expiration dates constantly getting moved back and postponed. The longer that scenario continues, the more likely the proverbial mom-and-pop operators will have to get out of the business – often via bankruptcy.