For the second time in 10 years there is an SBA loan fee waiver.
After the last Recession Congress passed an Economic Stimulus bill to help small businesses get financing they needed to either sustain or expand their businesses.
Due to the COVID-19 Pandemic Congress has passed 2 stimulus packages and the second one contains provisions that offer significant savings for small business owners utilizing the SBA 7a and 504 programs in 2021.
In addition to the fee waivers, the Economic Stimulus includes the following benefits for 7a and 504 loan borrowers:
- The SBA will make your first 3 months of loan payments (up to $9000/month) on new loans “fully funded” by Sept 30, 2021*
- The SBA will provide lenders a higher “guarantee” on 7a loans
- The new stimulus guidelines allow the use of the 504 loan program to refinance 7a loans
* Updated: the SBA announced on Feb 17th, 2021 they will only pay 3 months of payments for borrowers until the money runs out.
Each of the above benefits are significant.
The possibility of having your full payment or part of it paid by the SBA is fairly remarkable. This is not a forbearance and not a deferment – in this case the SBA will be making the first 3 months of payments on new 7a and 504 loans for you.
The higher guaranty will make it easier for lenders to approve some “riskier” loans.
Update: January 1st 2022
All of the benefits outlined in this post have expired EXCEPT for the one notated below re: the ability to use the SBA 504 program to refinance SBA 7a loans. This is a huge deal, because there are literally thousands of borrowers who have SBA 7a loans with a floating rate based on the PRIME RATE and PRIME is about to go up. If you have a 7a loan currently and your business is doing okay, then you owe it to yourself to see if you can qualify for a 504 refinance as you might end up with an excellent low fixed rate AND you might be able to borrow additional funds for other business expenses.
And, the ability to use the 504 to refinance an existing 7a loan could really help a lot of current SBA 7a loan borrowers since many of those borrowers are currently on “Prime plus” floating rates (many at Prime + 2.75% or 6%) and a refinance to a 504 could provide long term/25 year fixed rate financing for borrowers while rates are at an all time low.
The SBA 7a loan program consists of one loan that can be anywhere from a few thousand dollars all the way up to $5 million. It can be used for anything from small working capital loans to large loans for “owner occupied” commercial real estate (commercial property 51% or more occupied by a borrower’s business).
Most 7a loans typically carry a 75% guaranty from the SBA with a borrower-paid fee calculated as a percentage of the guaranty amount financed into the loan, but due to the stimulus the fee is waived so borrowers get the benefit of having no SBA loan fee and lenders get a larger portion of the loan guaranteed by the SBA.
Loans need to be fully funded by Sept 30, 2021 to get the waiver.
For loans of $350K and up, the SBA 7a loan fee is typically anywhere from approx 2.3% to 2.75% depending on the loan amount so this waiver represents a significant discount for small businesses.
SBA 504 Fee Waiver
The 504 program is quite different from the 7a in that it is a two loan structure where only the second mortgage is guaranteed by the SBA, so while the savings will not be as great with the 504, the amount of savings can be substantial – especially for larger loans.
The 504 fee waiver temporarily eliminates the .50% fee charged to borrowers on SBA 504 first mortgage loans and the 1.5% “CDC Processing Fee.” Again, these amounts are not insignificant. As an example, if you were borrowing $5 million for a new building for your business the total SBA loan fees waived would be approx $47,000.
Economic Stimulus Includes a Higher “Guarantee”
This second round of Economic Stimulus also includes a higher guaranty for 7a loans.
For most 7a loans, the SBA guarantees 75% of the loan amount for the lender. The new “guarantee” is now 90% which makes for a more secure loan for the lender allowing them to take a little more risk and possibly approve loans they might not normally approve.
Tangible Benefits of the Economic Stimulus Re: SBA Loans
There is a lot more to this second round of Economic Stimulus including more PPP loans, etc. but the net effect for what we do (commercial real estate loans for small and mid-sized businesses, sba loans for buying a business, partner buyouts, recapitalization of businesses, etc.) is it makes a 7a or 504 loan a better choice than a conventional bank loan in many respects.
For instance, approx 99% of conventional bank loans for owner occupied real estate require at least 20% down, while you can finance commercial real estate with no down payment with some SBA 7a lenders and the SBA 504 program requires just 10% down for most property types.
The primary objection that some borrowers have to an SBA loan are the fees involved. Well, since these are waived you can now get a 25 year term and amortization with either no down payment or possibly just 10% down without paying higher than normal loan fees.
In fact, most conventional bank loans have a balloon, a “reset” or an adjustment after 5, 7 or 10 years and there are 504 and 7a lenders that offer 25 year fixed rates, so if you are financing a building where your business is the major tenant you might be able to get yourself a loan that never needs to be refinanced with no down payment/nothing out of pocket (or just 10% down) and with fees no higher than – or quite possibly lower – than a conventional bank loan.
Please get in touch if you would like more information:
jking (at) green commercial capital (dot) com
7a and 504 loan info: