The “Small Business Lending Bill” aka “The Small Business Jobs Act” has not passed yet.

(Here is a quick rundown of what it means to SBA Lending: SBA HR 5297).

Republicans and Democrats are still fighting about the number of amendments that are attached to the bill and if the information I’ve heard is correct, it came down to the Republicans wanting 4 amendments to HR 5297 and the Democrats only wanting to allow 3.

Now, I know it is not that simple - far from it - but if both sides are in agreement that the bill is truly good for our country and there seems to be such widespread support for it then hopefully they can find a way to get it done.

We’ll see.

A complete summary of the bill on the United States Senate website can be found here

Funds for SBA 7a and 504 fee waivers that were part of the Recovery Act expired on May 31^st and the proposed legislation to extend it is unlikely to pass.

H.R. 4213 (or the “Extender Bill” as it has been called) passed in the House, but the Senate didn’t vote on it since it includes other spending items like tax deductions and unemployment benefits. It remains to be seen if the bill can be passed or if the fee waivers will be added to other legislation.

The waivers have been important part of the increase in SBA lending over the first half of this year and they have saved business owners a lot of money, but since SBA fees are financed into a loan they are not as crucial to someone seeking financing as they are not an up front/out of pocket expense.

As a result of the fee waiver expiration, the SBA Loan “Recovery Queue” has been reactivated for those who hope to sidestep the fees should the bill pass.

A more promising bill is HR 5297 since it includes a refinance provision as well as much larger loan amount limits.

SBA lenders have been talking about this for a while now and the latest bill - H.R.5297 (the “Jobs 3 Bill”) - has been passed by the House and the Senate will now take it under consideration.

This is the bill that stands to have the most immediate and long term impact on owners of small and mid-sized businesses because it is a potential “game changer.”

If passed the impact will be dramatic since it will:

• allow an SBA refinance with the 504, which would allow those with balloons coming due to refinance their commercial loan.
• increase the maximum 504 loan amounts considerably
• increase the maximum SBA size limits for an eligible business to allow larger businesses to qualify
• re-up the guaranty to 90% for SBA 7a loans. The 90% guaranty for the 7a has been the major reason SBA loan volume has increased because it has given lenders more security.

More Details:

• HR 5297 would increase “regular” and “public policy” SBA 504 loans to $5 million.  (Keep in mind the 504 loan is a second mortgage and typically accounts for 30 to 40% of the total amount financed so we are talking about some potentially large loans here).
• Energy efficient or Green 504 loans will increase to $5.5 million as will 504 loans for “small manufacturers.”
• SBA Size Standards for eligible businesses will be permanently increased to a (tangible) net worth of $15 million from $8.5MM and a 2-year average (net) income of $5 million - currently $3MM.
• SBA 7a Loans would also be increased to $5 million and the bill would also temporarily bring back the 90% SBA guaranty.

The Big Caveat: It’s a little complicated

These changes have the potential to dramatically impact the commercial lending landscape, but the one potential fly in the ointment is that “Small Business Administration loans” are really traditional (mostly BANK)  loans that are guaranteed by the SBA and the banks still have to step up and lend…and 504 loans underwritten with the new rules (assuming they pass) won’t take off like they should until the banks start getting comfortable approving first mortgages and it may be a while before that happens…because the secondary market for first lien 504 loans is still in it’s infancy after being “re-born,” but that’s a whole ‘nother post.

THE GOOD NEWS…is that IF they pass HR 5297 with the higher loan limit for 7a loans and WITH the 90% guaranty then many more businesses will have options because 7a loans are more flexible than 504 loans and they are very profitable for banks and the 90% guaranty gives banks the level of comfort they need to lend in spite of the current tight credit market…

Like I said…complicated, but the glass in definitely half full.

Purchase order financing is “transactional financing” where a purchase order lender finances the production of hard goods for an otherwise undercapitalized business.

The current restricted credit environment has made things very difficult for small and mid-sized businesses - especially those who sell goods to larger companies, big box retailers and government agencies.

The problem is not getting the business, but financing the production of goods to be delivered.

Purchase order financing is a very good solution for this problem because the PO lender uses a firm purchase order from a credit worthy customer as collateral to allow a small business to deliver goods to a large company or government agency.  i.e. it allows the “little guys” to compete with the “big guys.”

Of course, the cost is higher than a traditional bank loan or line, but the quick and simple nature of PO financing combined with the ability of the business owner to sidestep most of the usual “bank financing hoops” (as well as the time saved by not having to prove to a bank that you are “worthy”) more than make up for the cost.

The Small Business Administration announced today the first 9 “Loan Pool Originators” authorized by the SBA to sell pools of SBA 504 first mortgage loans.

The new secondary market is important because for the last few years most (formerly) active SBA lenders have been sitting on the sidelines since there’s been no place to sell first mortgages and no premiums as a result.  Banks have had to hang onto (or portfolio) any 504 first mortgage loans which has been a huge problem given all of the other difficulties they’ve encountered these last few years.  This new market should give them a place to sell the loans and get the capital they need to do more lending.

Recovery Act

The secondary market has been in the works for a while since it was originally announced as part of the Recovery Act and there is hope that with SBA Loan Rates for both first and second mortgage rates remaining low that SBA lending will continue to increase and that 504 loans in particular will be easier to obtain.

New Model

This new version of a secondary market is not quite the traditional model as it has been tweaked in a way that prevents some players from participating so time will tell if it gets the desired result.

It can’t hurt.

504 loan rates have headed back down after drifting upwards earlier in the year.

The current rate for the 504 20 year fixed rate second mortgage for real estate is 5.21%.  (10 year fixed rates which are typically used for SBA Equipment loans are at 4.60%).

504 rates have hovered near 6% for the better part of the last 4 years reaching a high of approximately 7.75% in December of 2008 and a low of approx 4.9% in November of 2009.

There is hope that with rates remaining at all time lows (and with the re-creation of the first lien secondary market) that SBA 504 loans will be easier to obtain.

SBA 7a and SBA 504 loan guarantee fees have been waived again as another extension of the Recovery Act was signed by President Obama Friday morning.

The current extension will last until the end of May and will include a continuation of the SBA 7a 90% guarantee.

Still no news on the 2 main SBA lending bills currently proposed in Washington - Senate Bill 2869 and House Resolution 3854.  If either one passes it will be good for small and mid sized businesses because both provide for larger loan amounts and/or increased SBA eligibility and both would also make a SBA 504 refinance possible.

The bills will likely be deliberated in May and hopefully one will be passed.

Asset Based Loans - A Good Alternative to SBA Loans

SBA 7a and 504 loans are 2 of the best loan options available to those in need of commercial financing at the moment, but the reality is that many small and mid sized businesses that have good cash flow cannot qualify at this time.

It could be that the banks in your area are having a tough time or their hands are tied by the FDIC…or maybe your business is on the rebound due to the recession and the last few years you do not look good on paper.

Asset Based Loans Could Be A Solution

As the name implies, an asset based loan is a loan against a business “asset” and the recent past performance of a business (something that is crucial for a traditional commercial loan) is mostly a “non-factor” since an asset based lender relies on the value of the asset used as collateral.

So if your balance sheet or credit does not look that great at the moment but you have predictable cash flow, “paid for” assets or good accounts receivable there might be an option for you.

Asset Based Loans Are Not Just for Hard Assets Like Equipment

Asset based lending is not just for things like expensive equipment.  It is includes:

· Purchase Order Financing – including “work in progress” PO financing

· Service Contract Monetization

· Financial Contract Monetization

· Accounts Receivable Financing or “Factoring”

· Credit Card Receipt Financing

· Sale Leaseback Financing

Asset Based Lending can be an affordable, necessary type of business financing and it can sometimes be preferable to a conventional or SBA loan.  It can also be expensive depending on the type of asset financed and your credit profile…but ultimately “expensive” is a relative term, because it could get you through the tough times until you are able to qualify for more traditional financing.

The House and Senate have drafted very similar bills to increase access to capital for Small Business, but neither has gained enough traction yet.  The Senate Committee on Small Business has passed their version, but the House’s bill has stalled.

If you own a small business and you need a loan, do yourself a favor and get in touch with your local Congressperson.  These bills have a huge potential impact on the fortunes of many small and mid sized businesses since they would allow for larger loans, continuation of the reduced loan fees, higher SBA guarantees for lenders and refinances through the 504 loan program.

Here are links to the offices of all of the House members.  Get in touch with them and let them know your needs:

http://www.house.gov/smbiz/democrats/members.htm

http://www.house.gov/house/MemberWWW.shtml

A new bill that could go along way towards helping America’s small businesses get back on their feet is currently being considered in Washington.  The bill would likely give banks and lenders the impetus they need to make loans to the many credit-worthy businesses who need to refinance or who need working capital.  It is called “The Small Business Job Creation and Access to Capital Act of 2009.”  

The bill has multiple components, but 4 of them have the ability to really benefit the small business owner:

1. An increase in the SBA 7a loan limit from $2 million to $5 million

2. An increase the SBA 504 loan limit from $1.5 million to $5.5 million

3. A provision to allow business owners to refinance their commercial property with the SBA 504 program.  (This would be a fairly dramatic development since their are so many businesses that are unable to refinance their existing commercial real estate loans).

4. An extension of the 90% SBA guaranty for 7a loans and a continuation of the SBA fee waivers for 7a and 504 loans through the end of the 2010.  (This is probably the most important piece of legislation in the bill since many banks and lenders do not feel comfortable with anything less than a 90% guaranty from the SBA).

The Senate Committee on Small Business and Entrepreneurship has passed the bill, but it still has a way to go.  The good news is that both Democrats and Republicans agree that getting credit to small businesses is the best way to revive the economy.

For those of you unfamiliar with the process, here is a good tutorial on how a bill becomes a law

http://www.youtube.com/watch?v=mEJL2Uuv-oQ