SBA relaxes certain loan policies

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The Small Business Administration has made recent changes to its loan programs that benefit both lenders and their smaller business borrowers. The changes were part of the $ 2.3 trillion consolidated federal credit package signed into law on December 27, which also allocated $ 284 billion to the SBA’s Paycheck Protection Program (P3).

“There are increased collateral percentages for the bank,” said Mike McGinley, executive vice president – small business loans at Live Oak Bank.

He cited the provision that temporarily (until September 30, 2021) improves the terms of Loan Program 7 (a) by increasing the SBA’s loan guarantee to lenders to 90% and offering reduced or no fees for the loan. borrower and lender.

“In addition, the guaranteed percentage for express loans of up to $ 350,000 has increased from 50% to 75%,” McGinley added. “They could be term loans or lines of credit. “

The extra cushion of protection is designed to encourage participation in SBA loans by more financial institutions and to make it less risky for them, McGinley said.

Another incentive from lenders comes in the form of reduced or waived fees, he continued.

“There are upfront fees that banks pay; it’s like an origination fee and it’s passed on to the borrower, ”McGinley said. “It was completely removed until September. Then there is an ongoing annual fee of 55 basis points (0.55% of the loan balance) that is paid by the bank to the SBA. These fees are not passed on to the borrower. These fees have been waived on any loan issued until the end of September 2021. “

For borrowers, the December legislation provides for a three-month government grant of principal and interest payments of up to $ 9,000 per month for new loans. If the monthly P&I payment is greater than $ 9,000, the borrower will only pay the amount above that threshold, McGinley said. For borrowers who receive a second grant under the new legislation, this grace period is only two months.

For borrowers in particularly affected sectors, these conditions are slightly more generous. McGinley pointed out that three of the 10 verticals he manages at Live Oak – franchised restaurants, educational services and fitness centers – are part of what the bank calls its “COVID 6”: these industries most at risk in due to the economic slowdown linked to the pandemic. The bank’s other COVID 6 verticals are hotels, craft wine and beverages, and franchise restaurants.

“Increased guarantees, fee reductions and subsidy payments: these are huge for COVID 6,” McGinley said. “And these changes, from a borrower’s perspective, make [a 7(a) loan] more affordable for them. Grant payments give them a head start and encourage people to participate in the program. If they had opted for a conventional loan six to nine months ago, now [the 7(a)] is more attractive. This is focusing more attention on SBA loans, and it’s good for us.

McGinley said Live Oak Bank has seen an increase in its 7 (a) apps, an increase that began even before the recent changes were announced. And things could get hotter if the terms improve even more.

“There are more stimuli to come as part of Biden [economic stimulus] invoice, ”he said. “We don’t know how this will affect small businesses, but it could increase ownership.”

Self-Help Credit Union‘s 7 (a) borrower grant extension is helpful, said Tracy Ward, who leads SBA loans for the Durham-based credit union. She explained that the majority of their borrowers are very small businesses, including minority-owned businesses. And she has seen a slight increase in SBA loan applications from them.

“The higher guarantee for lenders also helps the borrower,” she added, explaining that the SBA’s 90% temporary guarantee can encourage a lender to try their luck with an applicant with a poor credit history. lower than the pound sterling.

Since Self-Help is also a community development finance institution, Ward and other members of the credit union applaud a borrower-friendly change to the 504 loan program and await guidance from the SBA on the details of the program. . The 504 program lends to businesses for capital improvement.

“Normally, if a 504 borrower refinances, they can’t take any equity out of the building, but the SBA changes that rule,” she said. “A company that refinances its 504 now through December of this year can withdraw equity to reinvest in its business operations and help it survive.”

Refinancing is done through a bank or credit union, either the borrower’s original 504 lender or another lender, Ward explained, adding that it was a good time to refinance, with interest rates on 25-year fixed-rate loans below 3%.

Many small, minority-owned businesses in the Wilmington market may not be aware of the changes to the SBA 7 (a) program that could make them more attractive to a lender, said Chase Faircloth, branch manager of Self. -Help in Wilmington.

“We are trying to get the word out more to help more businesses grow,” he said. “We have resources available as well as credit counselors and internal partners that we can reach out to and make things as easy as possible for small businesses.”


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