Latest / Small Biz Florida / Ep 433 | From Renting to Owning: SBA 504 Financing with Ken Rosenthal

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Ep 433 | From Renting to Owning: SBA 504 Financing with Ken Rosenthal · Small Biz Florida

• 0:02
  Welcome to Small Biz Florida, your go-to podcast for all things small business in the sunshine
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  state. This podcast is sponsored by Florida First Capital, your trusted partner for financing and
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  support. Here, you'll discover the latest news, trends, and invaluable resources to help you grow
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  and succeed. From startup strategies to scaling your business, we've got you covered. Join us as
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  we explore the vibrant Florida small business ecosystem and connect you with the experts who
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  can make a real difference. And now, please welcome your host, Tom Kindred, Regional Director of the
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  Small Business Development Center at Indian River State College. This is Small Biz Florida, the
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  podcast and broadcast. That's all things business across the state of Florida. I'm Tom Kindred, your
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  host. And if you've been tuning in lately, you know Small Biz Florida is on the road again. We are at one
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  of my favorite gatherings, favorite gatherings for small business owners. It is the 2026 annual
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  FLAGLE Conference. FLAGLE stands for Florida Association of Government Guaranteed Lenders.
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  So the room is absolutely full of bankers, SBA lenders, fintech platforms, and it's all here to
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  help small business owners get access to the capital they need to start, grow, and succeed in business.
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  And we all know how important capital can be to small business owners as they're trying to scale
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  that business. So we have one of those innovative lenders with us right now. We've got Ken Rosenthal,
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  who is a senior advisor with Momentus Direct Capital. Ken, welcome to Small Biz Florida.
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  Welcome. Glad to be here. Aloha.
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  Thank you, sir. Yes. And we talked a little earlier.
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  You live in Hawaii.
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  I do. I live in the magical island of Kauai.
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  Live the dream, my friend. It is amazing. And that probably should be part of our
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  conversation. How is a guy from Hawaii going to help me with a loan in Florida?
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  But we're going to have, we'll get there. Yeah, we'll get there. All right. So let's start as we
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  always do, Ken. Just a little bit of your background, your pathway to your current role
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  as senior advisor with Momentus Direct Capital. So yes, I have been doing this for 35 years with
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  the same company, which is, I know, unheard of in any industry. So for the first 20 years of my SBA
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  career, I was with, or still am with, the company called CDC Small Business Finance, which happens
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  to be the largest SBA 504 CDC, which is a certified development corporation, which does the second
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  mortgage on the 504 program, which we'll get into and explain, that is, in Southern California. So
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  based in San Diego, our CDC covered California, Arizona, and Nevada. So doing the retail, as I call
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  it, portion where I dealt directly with a customer doing the second mortgage, the SBA piece of the
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  504, there's a bank does a first, CDC does the SBA portion. So I did that for 20 years, did a lot,
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  and after 20 years, had the opportunity to start a wholesale division to do the first mortgage on a
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  wholesale basis nationwide. The nationwide part's critically important to why I'm in Kauai,
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  because people say, you were in San Diego, why bother going anywhere else? Well, there's only one
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  other place better than San Diego, in my opinion, in the United States, and that's Hawaii. So because
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  I am wholesale, I deal with every community bank, every mortgage broker, every real estate broker,
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  every credit union, every non-bank lender in the country. So I have to be everywhere and nowhere
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  all the time. So I go to a lot of these EGLE conferences, as I call them, and I go to probably
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  12 of them a year. So I have a lot of miles. So I can be, I just travel a ton. So I could base myself
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  anywhere, which is why I was in Cho's Kauai, just because I like it. I do get up very early.
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  Yeah.
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  Because I have to work every time zone.
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  Right.
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  So let's start, I'm trying to figure out where to start.
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  Let's start with the weather in Hawaii. No, just kidding.
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  Yes. I can tell you about the hurricane we had. Another one coming.
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  Sorry.
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  Floridians understand that.
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  Yes, we do.
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  Super El Nino. You have the year off of hurricanes.
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  Listen, and we'll take it.
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  Yes.
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  So let's start with this. Let's start with the 504, SBA 504. Talk to us about that particular
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  loan product.
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  And I will open that up by comparing it to the 7A, because there are two options
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  for businesses to buy or construct a building. It's owner, user, commercial, real estate.
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  90% fixed rate financing for businesses to acquire a building or buy land, build a building and do
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  improvements, et cetera. The 7A program is a general business loan program. It can be used for any
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  business purposes, real estate included. It's also 90%. And the 7A program, a bank makes the loan and
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  the SBA provides a guarantee for a portion thereof, typically a 75% guarantee. So it's the bank and
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  SBA guarantee. Well, the way in which the government leverages money is the 504 program is 90% financing.
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  The borrower still comes out there 10% down, but a bank or a non-bank lender will do 50% in first
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  position. The SBA lends through the CDCs, which are not the Center for Disease Control, but the
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  Certified Development Companies, of which there's about 250 of them in the country, to do the second
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  mortgage. So now the government is only doing 40% so that it leverages funds. The beauty about the
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  program also is it costs the government and the taxpayers nothing because it's got a zero
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  subsidy means we don't use any government proceeds. They actually sell a bond on Wall Street to cover
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  that second mortgage. So you have a $2 million building, you have a $200,000 down by the borrower,
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  you have an $800,000 second. That $800,000 second is sold on Wall Street once a month. That's where
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  the money comes from. And that bond is guaranteed by the government, but the government doesn't
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  actually put out the funds. So that's why it has a zero subsidy, which is really good as far as
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  budget's concerned and taxpayers aren't paying for it. The first mortgage is done by a lender,
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  whether that be a bank, a credit union, in our case, a non-bank lender. So that's kind of the
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  basics. I like it. 504-101. Okay. Now let's talk about the term you use, non-bank. So give me your
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  definition of who you are as a non-bank lender, and then what's it look like in comparison to what
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  we would consider a traditional bank? So a traditional bank, maybe not anymore, but
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  traditional bank used to be brick and mortar. Now there's several don't have brick and mortar.
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  The difference is with non-banks, there's no depository relationship. So you want a bank at
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  your credit union, your whatever favorite institution you have, great. The non-banks don't offer checking
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  accounts or credit cards or any of those kinds. They're just doing lending. And there's several
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  non-banks that specialize in 7A, and there are many here at this conference. And there
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  are a few that are household names, and I'll tell you in a second, that would do 504 first
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  mortgages, and they do them for different reasons. We happen to represent a little company called
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  Morgan Stanley. Household name, but Morgan Stanley is an investment company. Well, in 2008, if
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  you watched the movie Too Big to Fail or lived through it, you know that they were one of
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  the ones that survived, but the government said, you're now a bank. Not that you're
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  going to open up a depository type thing, but we want to regulate you. So one of the things
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  as a bank, they have to do something called CRA, Community Reinvestment. And Community Reinvestment
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  Act allows or requires a bank to do good things for the community. So affordable housing is
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  one way, and actually making an SBA loan is another way. So Morgan Stanley came to us because
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  our CDC was the largest in the country and said, can you help us with this? And we said,
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  yes, but how about doing a wholesale division where you don't have to do the work, we'll
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  do it for you. So we market, package, underwrite, fund, and service all the loans for Morgan
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  Stanley. And we started that in 2010. 2023, New York Life came to us. We did the same thing
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  with them. Another bank called City First that we're doing it with. And we have our own capital.
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  Momentus has its own capital that we lend to small businesses. We do non-bank, I mean, non-SBA
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  lending as well. We are a nonprofit, by the way. So we're in it to help the small business.
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  Takes the greed factor out of it, so to speak. Yes. That's always good.
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  For the small business, it's good, yeah. Yes. So translate all the above, 504 and its benefits
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  and how it helps small business, how your institution, what we call a non-bank lending institution,
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  translate that into how do we help that small business owner? What's in it for them?
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  So typically, a small business is going to go walk down the street or go to their bank. And on a
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  real estate transaction, especially on a 504, most banks are going to offer a 25-year amortization,
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  probably a 10-year call, means it's due in 10 years, with a rate that's fixed for five. And the
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  rates typically are in the sevens to eight today. Morgan Stanley, because of their size and their
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  ability to do so, they're offering 25-year fixed rates, currently at 699, but just under 7%.
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  The second mortgage is the SBA piece, currently is at 6.54, which means you have a 90% fixed rate
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  funding between the two blended at like six and three-quarters. You can't get with your local bank.
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  So it's an advantage for the small business because they're going to get basically below
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  market financing. We are typically, we're wholesale, which means if you as a small business went to your
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  bank, just like in residential where they sell the loan, sure you've had situations on your home loan
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  that's sold. Well, that's the same thing can happen on the commercial side, but the bank's going to
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  take our rate and mark it up, difference between wholesale and retail. So your listeners can get
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  direct access and basically get wholesale pricing. That's the benefit. I like it. Great benefit.
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  Now, does a potential small business owner have to come to Hawaii to do the loan? Talk to us. So this
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  is with a part where you can help anybody anywhere, right? What you just went over is offered to
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  everyone. Yes. In all 50 states and in this beautiful age of electronics, we couldn't have
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  done this when I started in 1991, when everything was paper, right? So now because everything's
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  electronic, all financials, tax returns, everything is done electronic. So no, they don't have to go
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  to Hawaii. Neither do I have to go to Orlando per se. I go to Orlando to let people know about the
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  program, make sure everybody understands it. We work with a local CDC. So they're going to be our eyes
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  and ears on the ground. They're going to actually go visit the business. They're going to go look at
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  the property. I'm going to look at it online with tools like Google Map, LoopNet. The local CDC is
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  actually going to do the site visit and they'll be our boots on the ground. So in simple terms, how does
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  a small business owner access your rate? Does he go to his bank and say, I want to deal with momentous
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  direct capital? Or how do you get looped into the deal? How does the small business owner get direct
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  access to you to save that markup on the interest rate? So without you having me on your show,
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  they may not know about it. And they would go to their bank and their bank would turn around and
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  come to me. But because we're doing more direct marketing, so to speak, letting the people know,
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  we want to give access to the small business to come direct. So do they just email you? Well,
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  give us that information. K Rosenthal, that's K-R-O-S-E-N-T-H-A-L at cdcloans.com,
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  like cat, dog, cat. Okay. So small business owner looking to buy a building, buy a piece of property,
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  build a building. Can 504s be used for acquisition? Business acquisition? No, but we do a combo where
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  you're buying a business and the real estate. Okay. We'll do the real estate with the 504 and
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  the 7A for the business acquisition. All right. So looking to buy a building, looking to buy property
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  to build a building, textbook 504, they're working on this deal. They're getting ready to work on this
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  deal. They should just, they should immediately just reach out to you and say, kind of skip that
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  bank stop, call you and say, here's what we're working on. And you get the ball rolling at that
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  point. Correct. We can deal directly with the customer that way. Yeah. And if people go on
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  Google, they'll find us. Okay. We were on the list, I think we were the 10th largest, it's called TPL,
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  a third party lender, which is the first mortgage in the country last year. So we're not small.
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  And again, it's basic math. So again, I didn't do the addition and subtraction, but based upon what
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  you said, maybe a percent and a half, percent and three quarter difference to come to you.
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  Not only that. Yeah. It's about a 1% difference. Also, we don't charge any loan fees. So typically
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  a bank charges a loan fee. Wow. We don't. Again, you failed to mention that in the pre-show.
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  Yeah. We're a nonprofit and Morgan Stanley doesn't charge it. They want volume to do for their CRA.
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  They want to help small businesses. All right. So they're not giving anyone away, but it's very
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  reasonable. Okay. So yeah, no loan fee. The rate's going to be a little less than at your
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  traditional bank and it's fixed for 25 years. Well, that's huge too, because like you said,
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  a typical bank deal is, uh, like you say, amortized over 20, but there's a balloon in five or 10.
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  10 typically. Yep. Yeah. Uh, on a commercial loan. Correct. And then, um, and then if you just did
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  basic math percent on $2 million over 10 years, even at the, I mean, that that's real money.
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  That's real money, especially over 25 years. Right. It adds up scary fast. Okay. All right. Uh,
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  Ken, where have you been all of our lives? You went in Hawaii. Yeah. Yeah. I've only been doing
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  this for 35 years. I actually, I've done, uh, probably 10 podcasts. Yeah. Various SBA podcasts
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  across the country the last couple of years starting to be a thing. I like it. I like it.
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  Well, I mean, this is, and again, you know, back when I was in business, I mean, you sort of did,
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  you sort of did business with your, your local banker. You had that relationship, but you know,
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  today, uh, especially in business, you know, margins of, you know, or have changed, you know,
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  businesses don't make the kind of money they used to make. I mean, a percent on a, on a $2 million
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  loan matters now. You have to shop these things down. You have to be smart and savvy about borrowing
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  money. And that is true. Almost everywhere in the country, there is one portion of the country
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  that still operates the old fashioned way, so to speak, in the Northeast. If I've known you as my
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  banker for 20 years, I don't care what your rate is, which is, it's shocking to me. That's the way
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  they are in the Northeast. That's about it. Everywhere else, borrow or shop, but they should.
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  Well, and I think today, again, you know, here we are at Flagle and the room is full of,
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  you know, fintech organizations. It, it wasn't this easy before. Let's, let's be honest. It wasn't.
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  Right. And the electronic age is huge.
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  Yeah. Just no doubt. And I think some, you know, the discussion we have with small business owners
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  all the time is you have to be, uh, savvy about borrowing money. Borrowing money is,
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  that's a big step for a business. Uh, you know, that's, uh, that's when you really entered into a
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  new, uh, new arena in the, in the business. Now you've got obligations. So the challenge is you're
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  busy running your business. You know, you're making widgets, whatever you're doing. And like, yeah,
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  I need to borrow money to, cause I'm paying this in rent and the rent's going up. Buying a building
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  is probably better. I mean, we didn't talk about the basics, but buying a building, you, you have
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  your destiny in your own control. Eventually 25 years, you're going to pay it off. So you have
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  something to hand off to your heirs, control your own destiny. If it's fixed, it doesn't go up every
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  year. Like everything else does. That's the beauty of fixing it. And yet you're going to have to spend
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  a little bit of time, but it's not that much time. What we need is very similar to what you need in
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  residential. I mean, we need some tax returns and financial steroids. Absolutely. All right. It is
• 18:28
  Ken Rosenthal, who is senior advisor with Momentous Direct Capital. And again, this is, um, this is why
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  we come to Flagle. This is why we have these conversations. Um, there is, it's a, it's a real
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  thing. They're called alternative lenders. It is, it is a real thing, right? Yeah. Uh, I mean,
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  and that doesn't mean, oftentimes you hear alternative and like, Oh, that means they're
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  going to be loan sharks. Right. Right. Not necessarily. They're just, it's different
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  products, different tools, different strategies. Uh, and again, your whole connection to a, to a
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  Morgan Stanley makes a difference. So yeah, I just, um, it's, it's worth a business owner
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  investigating things. Exactly. We appreciate your time here on Small Biz Florida. Appreciate,
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  uh, you supporting the Flagle Conference and appreciate all you do for small business owners.
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  Absolutely. We'll continue to do so for years to come. Okay. And then I think
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  at some point we need a meeting at your house. All right. In Hawaii. Let's do it. Can you do small
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  business Hawaii? I, I could, I think this podcast, we could ship this right out there. I think you
• 19:34
  should take. All right. I like it. This is Small Biz Florida and it is all coming to you from the
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  beautiful JW Marriott here in Orlando, Florida. It is the 2026 Flagle Conference, Florida Association
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  of Government Guaranteed Lenders. Uh, the room is full of folks and the conversation is all
• 19:51
  about helping small business owners get access to capital. Uh, stay tuned more to come. This is
• 19:58
  Small Biz Florida. That's all for this episode of Small Biz Florida. We hope you found valuable
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• 20:34
  then keep innovating and keep growing. Thanks for listening.