HR 5297 passed the Senate last week. It will rush through the house and likely be signed into law by President Obama as early as Friday of this week. This bill will have a huge impact on business. Here, courtesy of Jack Kykendahl and Tom Yuhas is a quick run down of the bill:
There are a lot of little carve-outs in the law regarding extra depreciation on business assets, etc. that I will not get into here. I want to focus on a few of the HUGE changes to SBA and commercial lending and what they mean to the marketplace and the economy.
- Increase of the guarantee on the SBA 7A loan from 75% to 90%
- What it means: The government will guarantee 90% of the losses on an SBA 7A loan if the loan goes bad.
- Why it matters: Banks can loan out money on the SBA 7A loan and their total loss risk is capped at 10%. This makes them much more likely to approve loans. I have a start-up franchise restaurant loan for example that was 100% backed by collateral but because the client had no experience, no one wanted to do the loan. With this change, one of my lenders IS willing to do the loan because their risk is so mitigated. This change made his approval possible and that will be another store hiring 20 or so people that would not have opened without this change!
- Increase the SBA loan limits on the 7A loan from $2 million to $5 Million and on the 504 loan from $1.5 Million to $5.5 million.
- What it means: Increases the size of loans and the quantity of them that can be done on the SBA program. MANY PEOPLE DON’T REALIZE THIS BUT MOST BANKS WILL NOT LEND AT ALL OUTSIDE OF THE SBA LOAN PROGRAM. So changes here effects availability of money to all owner-occupied businesses. For example, line of credit loans or debt consolidation loans are almost all but gone unless done on the SBA 7A program. Same with business-only loans for Franchise start-ups.
- Why it matters: This is HUGE. This single change is estimated to increase lending by $5 Billion dollars and only cost the government $26 Million by their own estimates. It allows larger transactions to be done. But it also allows more transactions to be done. On the 504 program, it will allow loans in excess of $10 Million dollars to be done which allows larger small businesses that need large warehouse space, etc. to have better access to financing. Business only loans, where no real estate is involved, almost do not exist anymore unless done on the SBA 7A program. By increasing the limits, that successful business owner that has two or three stores but is tapped at the 7A loan limit can now open 3 or 4 more. More stores and small businesses opening means more jobs and opportunities. The impact on the economy is enormous here.
- Allows refinancing on the 504 Loan Program-THIS IS A GAME CHANGER.
- What it means-simply, that refinancing can now be done on the 504 program which up till now, was for purchases only
- Why it matters: A business that owns a piece of real estate can now refinance up to 90% of the value of that building to pay off the loan AND consolidate debt on equipment, etc. The blended rates on the 504 program are in the low 5% range right now-this can be HUGE to business owners and free up HUNDREDS of thousands of dollars in cash flow that can then be deployed to marketing, expanding, hiring, etc.
- Waive the SBA fees- Generally 2% of the loan amount; these fees are now waived until the end of the year. This makes it cheaper to do these loans and saves borrowers thousands.
This bill has long reaching ramifications and the benefits of it will be felt for years to come.
Thanks to Jack and Tom