News
Update: SBA Lending Legislation
The Senate took some action on small business legislation in the final days of June.
First, H.R. 4213 (the "Extender Bill") has already passed the House, but the Senate has failed to bring it to a vote. This is the bill that continues fee relief for the 504 and 7(a) programs and it also continues the 90% guarantee for 7(a) loans. NADCO, our trade organization, and many other groups, have been fighting for this portion of HR 4213. This is a large bill that includes many issues including unemployment. SBA program funding is a very small part of the legislation. At this time, there are no further negotiations occuring between the two parties in the Senate. Clearly,the SBA 504 loan program is running out of time on this funding need and the August recess is rapidly approaching. There are only three work weeks left, and other important issues are expected to take at least two of those weeks, leaving much to be done in the final week of July.
NADCO expects to discuss this funding situation with SBA managers to determine what to suggest to CDCs as they continue to enter loan packages in the SBA loan queue. Things are dragging out longer than anyone anticipated, and there is no clear timetable on when Congress might pass an Extender bill. It will become problematic for CDCs to continue recommending the holding of loan packages in the queue for borrowers if Congress goes on recess in August prior to voting on continuing SBA fee relief.
Second, the Senate “Jobs 3” bill now includes the former S. 2869, the bill crafted by the Senate Small Business Committee that includes the larger $5 million debenture, the temporary refinancing proposal crafted by NADCO, and a two year extension for the 504 first mortgage pooling guarantee program authorized by the Stimulus bill in February 2009. This language is identical to HR 4302, for which many NADCO members worked hard to gain co-sponsorship support from Members of the House and succeed in adding more than sixty members.
None of this language was included in the final House "Jobs 3" bill, as it was opposed by the House Small Business Committee leadership Thus, should this bill pass, the conference between the House and Senate becomes all-important for the proposed changes to the loan programs.
SBA Stimulus Package Highlights
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (the “Recovery Act”) (P.L. 111-5). Section 501 of the Recovery Act authorizes SBA to reduce or eliminate certain fees on 7(a) and 504 loans and Section 502 of the Recovery Act authorizes SBA to guarantee up to 90 percent of a 7(a) loan except for SBA Express, which remains at a 50 percent guaranty.
The Recovery Act does not change the submission process for the 7(a) and 504 Loan Programs. As before, Wakarusa Valley Development stands ready to assist you. Give us a call or send an email, whether it’s to submit a 504 Application, package a 7(a) Guaranty Loan, or simply answer any questions you may have regarding these changes.
7(a) LOAN PROGRAM
Guaranty Percentage and Loan Amount
As of March 16, 2009, a Lender may request up to a 90 percent guaranty for a 7(a) loan submitted under the following programs:
Loan Program Max Loan Amount Max Guarantee Amount
Standard 7(a) $2,000,000 $1,500,000
CLP $2,000,000 $1,500,000
PLP $2,000,000 $1,500,000
Lender Advantage $ 350,000 $ 315,000
Community Express $ 250,000 $ 225,000
Patriot Express $ 500,000 $ 450,000
Export Express $ 250,000 $ 225,000
Gulf Opportunity $ 150,000 $ 135,000
The Recovery Act did not change the maximum SBA guaranteed amount which remains at $1,500,000. Therefore, for those loan programs that have a maximum loan amount greater than $500,000 (Standard 7(a), CLP, and PLP), in order for the loan to receive a 90 percent guaranty, the loan amount cannot exceed $1,666,666 ($1,500,000 divided by 90 percent).
For loans greater than $1,666,666, the maximum guaranty will be calculated as follows: $1,500,000 (SBA guaranteed amount) divided by the loan amount rounded down to the second decimal. For example, if the loan amount is $1,680,000, then the guaranty percentage would be $1,500,000 divided by $1,680,000, which equals 89.2857 percent, rounded down to 89.28 percent.
For loans to borrowers with existing SBA-guaranteed loans, the new loan will also have a guaranty percentage less than 90 percent when necessary to comply with the Small Business Act’s limitation of no more than $1,500,000 in guaranteed amount to one borrower (including affiliates). (Section 7(a)(2)(D)(3) of the Small Business Act provides a higher maximum guaranteed amount for certain loans used for export purposes.)
Fee Eliminations
7(a) Loan Guarantee Fee Eliminations: For 7(a) loans approved by SBA on or after February 17, 2009, SBA will temporarily eliminate the Small Business Act section 7(a)(18)(A) fees (upfront guaranty fees) for all eligible loans, including those made with higher SBA guarantees (up to 90%) as provided in section 502 of the Recovery Act. For eligible loans approved between February 17, 2009 and March 16, 2009, the Agency will make funds available to refund payments for these fees. The Agency is developing a refund mechanism. SBA expects to be able to begin issuing refunds by approximately May 1, 2009. If borrowers have already paid lenders for the fee on eligible loans, lenders must reimburse the borrowers from the SBA refund.
Consistent with the prioritization for fee eliminations or reductions in the Recovery Act, the on-going guaranty fee set forth in section 7(a)(23) of the Small Business Act will continue to apply. In addition, SBA’s ¼ point guaranty fee set forth in 13 CFR 120.220(a) for loans with maturities of 12 months or less will continue to apply.
504 DEVELOPMENT COMPANY PROGRAM
Fee Eliminations
504 Development Company Program Fee Eliminations: For eligible loans approved through the Agency’s section 504 Development Company Program on or after February 17, 2009, SBA will temporarily eliminate two program fees: 1) Third-Party Participation Fees (Small Business Investment Act Section 503(d)(2) fees codified at 13 CFR 120.972); and 2) CDC Processing Fees (13 CFR Section 120.971(a)(1) fees). Consistent with the Recovery Act’s temporary elimination of CDC Processing Fees, CDCs will no longer be allowed to collect deposits from small business applicants that would have gone towards payment of the CDC Processing Fee upon loan approval under 13 CFR 120.935. SBA will reimburse the CDCs for the waived CDC Processing Fees.
SBA will pay CDCs two-thirds of the estimated CDC Processing Fee at the time of loan approval by SBA or upon the issuance of a loan number for a loan approved under the Premier Certified Lenders Program. The remainder of the fee will be paid immediately following debenture funding and will be equal to 1.5% of net debenture proceeds for which a CDC does not collect the CDC Processing Fee, minus the amount previously paid. If a borrower has already paid a CDC for the fee, the CDC must reimburse the borrower from the SBA refund. SBA will not permit CDCs to cancel loans approved by SBA prior to February 17th, 2009 and resubmit them in order to qualify for the reimbursement of the processing fee. If the Participation Fee has already been paid to SBA on an eligible loan, SBA will refund the fee.
Expiration Date for Both 7(a) and 504 Loan Programs
The elimination of 7(a) and 504 fees and increased guaranty percentage of up to 90 percent will be available until the aggregate dollar amount of 7(a) and 504 loans made under this authority exhausts the funds dedicated to that purpose.
Depending on loan volume in the 7(a) and 504 programs, SBA estimates that it will be able to eliminate upfront guarantee fees and that the increased guaranty percentage will be available through approximately December 31, 2009.
For more information regarding the 2009 Recovery Act, please click here.
SBA Announces New Energy Efficiency Public Policy Goals for 504 Loans
The SBA recently added the following three energy efficiency Public Policy Goals:
1) reduction of energy consumption by at least 10%
2) increased use of sustainable design, including designs that reduce the use of greenhouse gas emitting fossil fuels, or low-impact design to produce buildings that reduce the use of non-renewable resources and minimize environmental impact, or
3) plant, equipment and process upgrades of renewable energy sources such as the small-scale production of energy for individual buildings or communities consumption, commonly known as micropower, or renewable fuels producers including biodiesel and ethanol producers.
Projects meeting any of these can go to $2 Million without creating or retaining jobs, as with other Public Policy Goals, as long as the CDC portfolio average is $50,000 as required. In addition, projects that reduce energy consumption by at least 10% or generate renewable energy or renewable fuels are eligible for up to $4 Million in 504 financing.
Karen Mills Nominated to Head SBA
On December 19, President-elect Barack Obama designated Karen Gordon Mills as his pick for the next administrator of the U.S. Small Business Administration. Mills’ nomination is subject to Senate confirmation.
Mills is a founding partner of the New York-based equity firm Solera Capital and the chairwoman of the Maine Governor’s Council on Competitiveness and the Economy. She is also president of the MMP Group in Brunswick, Maine, and she serves on the boards of directors for the Maine Technology Institute and the Maine chapter of the Nature Conservancy.
“I’m delighted that Karen Mills has been designated by President-elect Obama to be the next SBA administrator,” said Shawne McGibbon, acting chief counsel for advocacy. “As a venture capitalist, Karen clearly understands the need to lower the regulatory hurdles growing small businesses face. She also knows how important small businesses are to the economy, especially in their roles as innovators and job creators. I look forward to working with her and her team to advance the small business agenda in Washington.”
Mills graduated magna cum laude from Radcliffe College, part of Harvard University, with a degree in economics. She received her master’s degree from Harvard Business School in 1977.
Businesses Find Cheap Capital in SBA Mortgages
Wall Street Journal, By COLLEEN DEBAISE
FOR YEARS, A LITTLE-KNOWN Small Business Administration lending program known as the 504 has stood in the shadows of the agency's flagship loan program, the 7(a).
But now, as banks tighten their lending practices and commercial office space becomes cheaper in some markets, a growing number of business owners are turning to 504 loans. These loans can be used to purchase business real estate or fixed assets (such as heavy equipment or machinery). And, because 504s are backed by the government, they're typically easier and cheaper to secure than conventional commercial mortgages.
SBA Welcomes Acting Administrator Sandy K. Baruah
In response to President George W. Bush naming Sandy K. Baruah to be the U.S. Small Business Administration's Acting Administrator, today the agency welcomed Baruah and prepared for his arrival.
SBA Releases Modernized Lender SOP
As part of its reform agenda to become easier for lenders to work with, the U.S. Small Business Administration today released its modernized Standard Operating Procedure for lender and development company loan programs.