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Tip of the Week Turning on the Tap - Implementing Changes in SBA Lending By now, most of you have probably read the new Policy Notices from SBA (5000-1097 and 5000-1098) that address the implementation of temporary stimulus measures resulting from legislation (American Recovery and Reinvestment Act of 2009) passed by Congress and signed into law by President Obama on February 17th. We now know that borrowers will enjoy fee relief on both 7(a) and 504 loans for the foreseeable future and 7(a) lenders will enjoy a higher guaranty percentage up to 90% on most eligible loans. These changes are not permanent (experts envision that the allocated funds will be spent later this calendar year, probably in December – depending on market response and volume). And there is more to come from SBA and Treasury regarding significant impacts on our programs. Quick Summary: -
The 7(a) program gets an increase in guaranty percentage onall loans (except SBA Express) up to 90% (from 75-85%). The increased guaranty applies to loans made on or after 3/16/09. However, the maximum guarantee amount still remains at $1,500,000. So for loans greater than $1,666,666, the guaranty percentage will be calculated by dividing $1,500,000 by the loan amount (and round down). Also, don’t forget to take into account outstanding SBA loans to your borrowers that may impact that maximum guaranty amount on any new loans. -
On 7(a) loans, prior to first disbursement, the lender must require the borrower (any operating company, OC) to certify that the borrower (or OC) has not engaged in a practice of hiring “unauthorized” aliens. -
The 7(a) guaranty fee is eliminated for all loans approved by SBA on or after 2/17/09. SBA will refund the guaranty fee for loans that have already been made after that date (SBA will begin issuing refunds by 5/1/09). If the borrower has paid the fee, the lender must reimburse the borrower from the SBA refund. -
For 504 loans, the Third Party Participation fee and CDC Processing fee are eliminated for all loans approved by SBA on or after 2/17/09. CDCs will no longer be allowed to collect deposits from applicants that would go towards the payment of the CDC Processing fee (SBA will reimburse the CDCs for this fee – 2/3 paid at time of SBA loan approval and 1/3 paid upon debenture funding). If a borrower has already paid a CDC for the fee, the CDC must reimburse the borrower from the SBA refund. (SBA will not permit CDCs to cancel loans approved by SBA prior to 2/17/09 and resubmit them). -
SBA loan proceeds (both 7(a) and 504) may not be used to assist any State or local government, or any private entity, for any casino, or other gambling establishment, aquarium, zoo, golf course or swimming pool (lenders may continue to submit for the lower guaranty % and pay applicable fees for these type projects). 504 debt refinancing (up to 50% of project may be used to refinance existing debt that was used to acquire fixed assets). ARC loan (America’s Recovery Capital) program – will offer 100% guaranty by SBA on deferred-payment loans up to $35,000 that need help making payments on existing loans for up to 6 months (not available to cover payments on existing loans made before 2/17/09).
Regardless of how you feel about the Stimulus Bill and the subsequent short term practical changes to the programs, the fact is, these changes are now in effect and the question is, are you ready to deal with it? Are you ready for calls from borrowers who heard a snippet of something on the news (but frankly, they don’t have the whole picture)? Are you and your team prepared (scripted) to respond to those who think they are entitled to “free government money”? Are you prepared for a possible influx of new loan volume or inquiries from existing borrower clients interested in how these changes might affect them (if at all?)
Based on many conversations with active SBA lenders all over the country, here are some tips that we thought might be timely and helpful as you consider the impacts of all the current change on your SBA lending program delivery. -
Stay informed. So much is changing and so rapidly, it feels like a full time job sometimes just to stay up to speed. Stay connected, build a network of trusted advisors familiar with SBA lending and recognize that in times like these, the answers to your questions may not be fully formulated yet. But don’t be afraid to ask. -
Share the right information with the right folks internally. Believe it or not, we have known people who hoard information under the old adage “knowledge is power”. Sharing accurate, relevant, timely information is powerful. Be part of the solution – not part of the problem. -
Internalize and implement the changes in a practical way for your organization and your clients. Instead of looking at what the Stimulus doesn’t do, why not look at the positives of the bill and the rollout? Things have been locked up for a while and maybe, this will help change attitudes and confidence and drive some flow. -
Avoid the “stampede” mentality. Remember hearing about the Oklahoma land rush? People got hurt and it was messy. Be measured, prudent and “be quick but don’t hurry”. We tend to follow the herd in this business (sometimes not such a good idea). Be a leader and do it right, for the sake of your bank/CDC and your borrowers. -
Balance new volume with quality of service and portfolio quality. In unstable, uncertain times like these -consider this. We need balance. Don’t lock up, but don’t go hog wild. Turn on the tap, slowly at first, then as the kinks work through the system, everything should start to flow better again.
We at sbaAccess are enthused about recent announcements both on the origination front and also on the improving secondary market. It took awhile to get bad and we all know it will take time to return to “the good old days”. But there are some encouraging signs. For what it’s worth, business is good and getting better. We’re working with all kinds of lenders – community banks, regional banks, national players, non bank lenders, CDC’s and credit unions. Everyone has a part to play and everyone can use a helping hand from time to time. So as you and your organization “turn on the tap”, don’t hesitate to give us a call if we can help you work out some kinks along the way.
Take the right approach Brian Burke and Karen McHugh
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