There is a tremendous amount of press around the Small Business Jobs Bill that recently passed. But what does this mean for you the entrepreneur that is trying to secure a commercial mortgage? We are going to explain the positive and the negatives below and how they pertain to SBA loans.
Most importantly there has been a huge increase to the loan amounts on both the SBA 7a loan and the SBA 504 loan program. These changes are permanent. The new maximum loan amount on 504 loans has increased to $5 million (on the second lien piece), the total max loan amount on the 504 is now $12 million. Also, the maximum loan amount on the SBA 7(a) loan has increased to $5 million… from $2 million. This is huge. Note that throughout the credit crisis the 7a loan has been much more reliable. This is partially because the secondary market, where commercial mortgages are purchased by large investors, wanted the guarantee from the SBA. On 504’s the first lien position loan is not guaranteed.
Fee Reductions and Increase to the Guarantee for SBA Programs.
There has been a temporary Guarantee Fee reduction as a result of the Small Business Jobs Act. The average fee on an SBA loan is 3% of the total loan amount. But they only initiated this reduction for two and a half months. The fees will come back on 12/31/10. Also, the guarantee on SBA 7a loans is normally 75% of the loan balance. It has now been raised to 90%. This is great, however what they have done is set up American business owners for another round of confusion, chaos and canceled loans.
You might be thinking, “don’t look a gift horse in the mouth” but this is the 4th time since the credit crisis began that the government issued short term relief followed by having the old standards coming back into place, with many months of confusion on what will happen next. There will now surely be a rush of borrowers that try to get financing and many will spend a lot of time applying, and not get their loan approved in time. Borrowers have more than their time at risk as well, many will lose thousands of dollars on third party fees (appraisal reports, environmental reports, etc) that will go to waste as many banks will only approve their loan based on the 90% guarantee. This will surely be the case on many larger loans. As soon as the 75% goes back into place, their hopes of getting their loan closed goes away as well.
We spent $3 trillion so far on the TARP programs, Federal Reserve Rescue Efforts, Federal Stimulus Program and can only devote $30 billion for small businesses that create 60% of the jobs in this nation? What are they thinking?