Tip of the week What May be on the Horizon for 504 and 7(a) in 2009? Several years back, the SBA powers at the time dubbed the year “The year of the 504.” It was the year that some major changes were implemented to streamline the program, encouraged more competition among Certified Development Companies (CDC’s), provided more options and better processing service for 3rd party mortgage lenders and borrowers. Rates were low, opportunities were high and times seemed bright. We saw a shift in many SBA shops around the country, especially in California, where 504 started becoming not only an option, but in many scenarios the preferred product both for the customer and the lender. At the same time, the SBA 7(a) small ticket loan program known as SBA Express took off due to some prior streamlining by the agency with the help of the industry and demand was high for smaller loans and lines of credit. Meanwhile the cornerstone program of SBA lending, the tried and true 7(a) guarantee loan program still grew and was well utilized by a stable group of bank and non bank lenders, but it didn’t grab as many headlines. This year may be different. We’re coming off a big drop in 7(a) lending both in terms of dollars and numbers of loans. Several high profile players have gotten out of the business or significantly curtailed their scope. Those lenders heavily dependent on secondary market sales for liquidity or bottom line income pops are peddling hard just to cover overhead. Naturally things get a little quiet over the holiday season, so right now it feels like the calm before a storm. But will the storm be bad news or perhaps good news? Like everything, it depends on your perspective and your flexibility. Based on many conversations with our clients, with folks in the agency, and many of our faithful readers, we’ve gleaned some things that seem to be in the works. We’ll all learn a lot more over the coming weeks and months. A consensus seems to be building, regardless of your preferences or position – that this year, 2009, could be the year of the 7(a). Here are a few tips for “reading the tea leaves”: - SBA 504 bond rates, while still generally attractive in our view, are higher than in recent years so there may not be the pricing advantages to this program as in the past.
- After a long wait and many frustrations, it appears things are lined up to move a stimulus bill that could include some goodies for SBA lending, especially the 7(a) program including possibly:
o Larger loan size – from $2 Million to $3 Million o Simplified and larger size standards – same as 504 - If things go really well, we may see some bold actions by the new Administration and Congress to boost small business lending, here are some possibilities:
o Higher guarantee percentages from 50% and 75% for Express and standard 7(a) respectively to something higher. o Lower fees for borrowers and lenders on the origination of 7(a) loans o Lower (or suspended fees) for lender oversight o The foundation has been laid and 7(a) is part of the deal, now we need to see if in fact something practical will result and lenders will be incented to lend more flexibly again. - Administrative and OMB flexibility – all signs point to a more proactive, supportive environment for the right kind of SBA lending.
If just some of these things happen, we believe we’ll start to see some new energy and a reversal of some of the negative trends that are there today. And believing in the “all boats rise” theory, 504 and Express lending should see a positive bounce as well. We appreciate that there are many “if’s” right now and we wouldn’t expect all these things to fall into place perfectly or immediately. So if some of these things happen, are you ready to take advantage of the opportunity? Let us know if there is something we can do to help you prepare, whether it’s training and coaching for your team or a review of your policies and procedures, there’s a storm coming and it might just blow in some positive winds of change. Take the right approach Brian Burke and Karen McHugh | 
