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Sunday, February 28, 2021
Good Morning. As always it is a pleasure being here. It is especially nice now that we have warm weather, and the snow is melting.
This morning I wanted to discuss SBA Lending Options and Benefits in the current market. SBA refers to lending programs run by the Small Business Administration.
Before I get started, I wanted to take a moment to let people know that there have been many short-term changes made to SBA lending in the past few months. Although I plan to discuss some current program updates today, please note that what I discuss today could change at a future date.
Under normal circumstances the SBA lending programs are pretty consistent in what they offer. And I will tell you the underwriting criteria today really hasn’t changed from what was available in the past. Who qualifies, what financial requirements need to be met to qualify, and what is needed to get an approval and close, is still pretty much the same today as it has been in the past. What has changed is some of the fees and costs.
Most of the changes to the SBA lending programs have come from the Stimulus legislation approved in December. However, what was contained in that bill and what the SBA is actually offering have become two drastically different things. The SBA continues to make changes on a daily basis, so everything that I talk about today as being available under the program could change tomorrow. In fact, what I spoke about in December has already changed quite dramatically.
Now to get into the benefits currently available under SBA financing:
- The SBA is waiving the government guarantee fee for SBA 7A loans and limiting fees and costs for the SBA 504 loan program. For every $1 million financed, this could be as much as a $25,000 savings in typical SBA costs. For a large SBA loan this savings can be quite significant. The savings is in place so long as funding does not run out through September 30th, 2021.
- The SBA is providing for three months of loan payments, up to a maximum of $9,000 in principal and interest payments per month, for all new loans funded and closed before September 30th, 2021, so long as funding does not run out. This is a change from what was included in the stimulus bill. The stimulus bill said every new borrower was going to get six months of payments (which is what they provided for in the Cares Act last year), but the SBA has already reduced this to 3 months to try and be sure they do not run out of funding.
- The SBA has raised the government guarantee on SBA 7A loans from 75% of the loan amount to 90% on loans at or below $3.75 million. Although functionally most borrowers do not see this as an impact, it does provide an impact indirectly because with a higher government guarantee from the SBA, lenders only have about 10% in exposure on these loans. This low exposure level increases the chance SBA lenders are going to make loans that are higher risk.
- Under the SBA 504 loan program you can now refinance SBA 7A loans into SBA 504 loans. However, the SBA has not yet released the rules on how this is going to work. As soon as we have that information, we will get it out.
- The SBA PPP program was extended providing a second draw for Borrowers that had a first draw and had one quarter of revenues in 2020 that saw a 20% or more reduction from 2019. The program also provided first time draws for any small business owner that did not take out funds in the first draw phase as well. All PPP loans must be funded by March 31st, 2021.
These are the five main changes that impact most clients. Again, what I just discussed could change as the SBA comes out with additional rules or continues to change things to be sure they can fund the most borrowers. I have clients that received letters just in the last two weeks from the SBA telling them they were getting six months of payments made and now they have been notified by their lender the SBA is saying it is only going to be 3 months of payments now. In fact, the administration just this week threw changes into the PPP program making it so only companies with 20 or less employees can get processed over the next two weeks and additional changes that opened the program up to business owners who did not qualify before. So, SBA lending and the PPP program in particular, has been a bit of a mess as of late.
Remember, SBA financing can work for any business debt or owner-occupied commercial property that is 51% or more owner-occupied with someone’s business. It is a great way to get extended terms on business debt (up to 10 years for business only debt, 25-years for owner-occupied real estate debt, and a blended amortization if it is a combination of both). The programs can be used to consolidate existing debt, buy new assets, buy owner-occupied properties, expand those properties, buy a business, start a business, get working capital, or any combination of these factors as well as others.
If you are wondering if you should consider SBA financing for your business, we would be more than happy to discuss it with you at any time. The best way to reach us is by phone at 630-988-4852 or via email at brad@commercialend.wpengine.com.