No Extension of SBA Loan Fee Waivers…yet
The much hoped extension of the SBA 7a and SBA 504 fee waivers that was included in HR 4213 was cut from that piece of legislation before it passed, but it was added to HR 5297.
However, HR 5297 was voted down last week in the Senate, BUT…this bill is way too important to die and regardless of recess timetables for those in DC it seems that there is enough support from both Republicans and Democrats to get it passed. (I realize that almost every news outlet on the planet has already prounouced the bill dead, and maybe I am being too optimistic here, but I think they will find a way).
Why the 90% Guaranty is More Important Than Fee Waiver
The fee waiver has saved small business owners an awful lot of money since it was passed as part of the Recovery Act, but the 90% guaranty for SBA 7a loans is more important.
Here’s why:
SBA fees are typically financed into the loan amount, so while it is very nice that the fee waiver exists, it’s impact is less dramatic than it appears since the additional financed amount of the fee does not significantly impact the monthly payment on the loan.
Both the fee waiver and 90% guaranty have played a role in increasing SBA lending, but it is the higher guaranty that has allowed lenders to make more loans. The fee waiver has served more to get the attention of small business owners and it has been a great way for SBA lenders to tout why now is a great time to apply.
75% vs 90%
The 7a program is (by far) the more utilized SBA loan program because it can be used for “any legitimate business purpose,” and it normally has a 75% guaranty – meaning that if a borrower defaults the lender is covered for up to 75% of the loan amount by the Small Business Administration.
The Recovery Act increased the guaranty to 90% which took a lot more risk out of the process for lenders, and since lenders make premiums on the sale of the guaranteed amount of the loan it increased the amount of profit per loan.
That’s right, SBA lenders make premiums (think cash money right up front) on the sale of the guaranteed portion of a 7a loan and some of these premiums can be quite large because there are lots of buyers for loans guaranteed by the SBA/Federal Government.
So when a bank makes a loan they almost immediately make money on the sale of that loan…and banks needs money.
I will save the nitty gritty details of how this all works for a later post, but just know that a 90% guaranty enables lenders to make more money with less exposure and less reserves and as a result they are more willing to approve good loans vs. just the “easy” loans.
It is not that the higher guaranty gives them the ability to do loans they would not otherwise do, it’s more that it reduces their exposure and reduces the amount of capital they need to lend – something that it is very important to them…and the FDIC.
Stay tuned.
View Comments (16)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1 2 Next »Hello....our bank has approved our SBA loan and we are waiting on the approval of the fee waiver before we close. What are the chances that
this bill will pass, and would your advice be for us to wait, if so how
long.
I am assuming your loan is in the “SBA Loan Recovery Queue” - http://www.sba.gov/recoveryq/index.html - so if it is it looks like you have a good shot at the waiver. Hard to say on the bill…I think it will pass, but it could be as much as a month or two before that happens.
In your opinion what concessions do you think the minority is waiting on to get this bill passed? Is there a number or type of amendment that they will demand to get this passed or is this just plain old spiteful foot dragging. If this is just foot dragging are you confident that this will get passed and if so when?
There has been an awful lot of gamesmanship with HR 5297 and last week it came down to the Republicans wanting 4 amendments and the Democrats only willing to allow 3, BUT there are those in BOTH parties that want the bill to pass and the delay is due to each side trying to tack on what they can.
My feeling is that neither party wants to be responsible for blocking it and further hurting small business/Main Street, but you can expect more finger pointing before it's done and don't be surprised to see both parties take credit for eventually seeing it through.
I wish I could say I have some "inside information," but any confidence I have in it passing is purely based on my understanding of the bill and common sense. There really is so much good that could come from it and it could be the type of widespread, grass roots kind of stimulus that our country needs. You could even argue that they have gone too far, because $30 billion is a lot of money in the hands of lenders and just passing the SBA loan portion of the bill would cause a big uptick in the amount of SBA loans being made.
Anyway, it is "hurry up and wait" since it is unlikely that anything could be passed until September, but they will get around to it.
Waiting to sell my business to buyer that won't be approved by the bank unless bank gets 90% guaranteed. Lenders have the money, but they just don't want any risk. Even borrowing from the FED at near 0% levels doesn't motivate loan-shy lenders.
This is the only recent legislation that makes sense to stimulate the economy. Small business is the backbone of this great nation, and helping small business grow or survive in these “very” tough economic times may be the difference between hiring and firing. Entrepreneurs need capital to take legitimate ideas off the kitchen table and make them a reality.
I remember in the early nineties applying for an SBA loan for small collection agency. We needed more computers and capital to hire more people. The CPA felt very strong about our proposal but we were faced with the recession of the time and banks once again refused to lend.
It seems this country can be somewhat manic in there lending practices. Some years money flows and other don’t bother applying, cause we ain’t lending.
If money must be printed for the “benefit” of the country, at least put it in the hands of people looking to create something vs. just consuming. Creating business can last months, years and decades, but entitlements last until the morning flush.
I hope the senate realizes the potential good that can be generated from this tiny program in comparison to the overall stimulus. Putting aside petty amendments that can’t stand on their on merit muddy up the waters and delay the real shot in the arm this country needs - real American business and people willing to take a chance because they believe in themselves and the product and services they offer. That’s what I can real change you can believe in, small business.
John - any progress/status update to your August 2nd article/post?
Hi Dan,
Sorry for the slow reply. Yes, as I expected the bill is close to being passed. Assuming things go without a hitch, the next step is for the SBA to quickly revise their guidelines so lenders can start making loans based on the changes.
Let's hope they are already working on it.
John
John,
We are currently working with a small local bank on a 504 $50K portion of a $150K startup project. He is feeding me this line about the 90% guarantee being reinstated and having a better chance of getting a loan and that he would know something in a few weeks. Any updates on this bill passing soon?
It is true that the 90% SBA guarantee makes a loan a lot more attractive/possible for a lender, but the 90% guarantee is an SBA 7a loan provision. The bank does not have an SBA guarantee on their portion of a 504 transaction - usually the first 50% of a projects costs - and the SBA guarantee is on the second mortgage/debenture (usually 30% or 40% of the project costs) from the local CDC (Certified Development Company).
Maybe the banker is talking about a 7a?
I thought the bill was supposed to be signed this week. I have an SBA loan on hold waiting for the fee waiver to pass. By next week, I'll probably want to "pull the trigger" on this loan even if it means paying the $4,000 in SBA fees. Is there any news on the status of the reconciliation and signing?
Hi George,
HR 5297 will be signed into law today. (Sorry for the slow response).
John
Is the SBA again charging fees on the business loans?
Hi Daryl,
Yes, the "regular" SBA Guaranty Fees have been in effect since the beginning of the year.
John
Any chance a 4th quarter 7a SBA Guaranty Fee waiver will occur this year 2011? In this economic environment it would certainly help our small business!
Hi Robert,
Nah...it would literally take an "act of Congress" and that 'aint happenin'...
John King