“Although the report by Randy Griffin, President of CSRA Business Lending, a CDC in Augusta, GA, details all the positive elements of the Small Business Jobs Bill, it was very discouraging to discover the increase in SBA loan amounts to $5 million will take 60 to 120 days,” noted Michael D. Sneden, Executive Vice President of ValueXpress. “This effectively locks out any of the higher loan amounts from the 90% guaranty/fee waiver as the funding will be exhausted or the December 31, 2010 expiration will likely occur before the new rules take effect and the SBA begins to accept applications at the higher limit.”
Griffin’s positive report detailing the dramatic changes attached to the Small Jobs Bill is detailed below:
As expected President Obama signed into law HR 5297, the Small Business Jobs Bill, which will provide banks an avenue to borrow funds from the U.S. Treasury to make small business loans. Also attached to this bill were dramatic changes to SBA lending programs — waiving fees, increasing guarantees, increasing loan amounts, and changing the SBA 504 program to allow it to be used for debt refinance.
Effective this morning fee waivers are once again in place for SBA 7(a) and 504 loans. The fee waivers will be in place as long as the funding lasts or until December 31, 2010. We do not anticipate the funds for fee waivers will last until the end of the year so any borrower who wants to take advantage of the fee waivers needs to apply as soon as possible. The next step for the other enhancements (larger loan amounts and refinancing under 504) will be for the SBA and the Office of Management and Budget (OMB) to write the new regulations. These changes will not be in effect until those regulations are completed and they are expected to take 60-120 days. The SBA is keenly aware that small business owners and their banks are in need of these new loan products and will work as quickly as possible to get the regulations written, get them to OMB for approval, and then published in the Federal Register as required under federal law so that applications can begin. SBA enhancements included in the bill will happen in two phases (1) immediate and (2) in 60-120 days.
Immediate: Certain fees on SBA 7(a) and SBA-504 loans will be waived through December 31, 2010 or until funds to pay those fees allocated in the bill expire, and the guaranty on an SBA 7(a) loan will increases to 90% from 75% through December 31, 2010 or until funds to pay those fees allocated in the bill expire.
Next 60-120 Days: Once the SBA writes regulations on new programs it must clear those regulations through OMB and then publish them in the Federal Register. This process is expected to take 60-120 days. When the rules are issued they will permanently increase the maximum amount of an SBA 7(a) loan to $5.0 million from $2.0 million and permanently increase the amount of an SBA 504 loan to $5.0 million from $2.0 million.
In addition they will change the rules to make refinances on real estate eligible under the SBA 504 program for two years (refinances currently are not eligible). With the current very low fixed rates on SBA 504, this is expected to be a very popular tool. The program will be in effect for two years after enactment. The final rules will establish the exact rules on refinances, but the bill hints at what may be in the rules: maximum $5.0 million on SBA’s 504 second mortgage portion (when you combine the bank portion of a 504 projects could likely be as high as $10-$12 million); the loan(s) being refinanced would have had to be eligible originally (i.e., owner-occupied fixed assets no investment or non-owner occupied properties); the business would have to have been in business more than two years; the business will only be able to refinance debt that is older than two years old; the debt being refinanced cannot already have a federal guaranty (i.e., cannot be a 7(a), 504, or B&I currently); and any Note being refinanced could not have been past due over the previous 12 months. The SBA will likely establish and clarify further rules on cash out and other provisions of the new refinance program in the final rules.