On January 28, the SBA announced modifications to 7(a) Loan Program Guaranty percentages to increase the guaranty to 90%. Effective December 27, 2020, and through September 30, 2021, SBA participation (i.e., the guaranty percentage provided by the SBA) is increased to 90%. (See 2. below on Guaranty Percentages and Loan Amounts for effective guaranty rates for loans once the SBA reaches the statutory limit for the total guaranteed loan amount to a borrower.) On October 1, 2021, the guaranty percentages will automatically revert to previous levels.
The Economic Aid Act did not increase the statutory aggregate amount of the SBA portions of all loans to a single borrower, which is $3,750,000. Once the maximum level of participation of $3,750,000 is reached for 7(a) loans, the guaranty percentage must be reduced to ensure this maximum level of participation is not exceeded. For example,
- To receive a 90% guaranty, the maximum loan amount cannot exceed $4,166,666 ($3,750,000 divided by 90%).
- To determine the guaranty percentage when the total loan amount to one borrower (including affiliates) is greater than $4,166,666, the maximum guaranty will be calculated by dividing $3,750,000 (SBA-guaranteed amount) by the loan amount, and then rounding down to the second decimal. For example, if the loan amount is $4,500,000, then the guaranty percentage would be $3,750,000 divided by $4,500,000, which equals 83.3333%, rounded down to 83.33%.
This modification will encourage SBA lenders to close more SBA 7(a) loans as the amount of loss exposure to the SBA lender is now limited to 10% as opposed to 25% previously. To obtain an SBA 7(a) loan, contact Mike Sneden (email@example.com; 212-883-6447) or Gary Unkel (firstname.lastname@example.org; 212-883-6475).