HR 5297 – SBA Refinances, Larger Loans, Larger Companies Eligible
SBA lenders have been talking about this for a while now and the latest bill – H.R.5297 (the “Jobs and Lending 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.
- 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.