SBA loan fees returning

Thanks to Florida First Capital Finance Corporation for this update that indicates the funds for eliminating soft costs for SBA 7a and 504 loans are exhausted so we are returning to the pre-ARRA regulations unless the Obama jobs bill is passed. The bill includes a provision to eliminate loan fees through September 2010. Read on…

The Small Business Administration (SBA) has announced plans to simultaneously wind down the temporary enhancements for the 504 and 7(a) programs and bring both programs back to pre American Recovery and Reinvestment Act (ARRA) terms.

In December, Congress and President Obama extended the temporary elimination of most up-front program fees for 504 and 7(a) loans as well as an increased guaranty percentage on 7(a) loans. Those enhancement funds, however, are now exhausted. Given this, the SBA has re-activated its Recovery Loan Queue effective Monday, Feb.22.

As was the case in November, 504 applications submitted as Recovery Act loans will be processed up to the point of approval and then will be placed into the queue awaiting the availability of funds. Sometimes previously approved loans are later cancelled or never disbursed for a variety of reasons.

The queue takes this into account and will allow eligible small businesses, in consultation with their lender, to choose to be placed in this queue for possible approval if funding becomes available. Small business owners and lenders will have transparent access to the queue via and will be able to remove themselves from the queue at any time to be considered for a non-ARRA SBA loan with all applicable fees.

Through the original $375 million and the additional $125 million in appropriations for the temporary enhancements for both programs, the SBA has supported more than $20 billion in lending to small businesses across the country and seen its average weekly loan volume increase by nearly 90% since February 2009.

Currently, the SBA and Obama Administration are working closely with Congress to secure passage of the Jobs Bill, which contains an additional $354 million to extend the program fee eliminations through Sept. 30, 2010. That bill also contains provisions that would increase the cap on 504 loans to $5 million for standard small businesses and $5.5 million for small manufacturing businesses. 504 loan caps are currently set at $1.5 million ($2 million if a public policy is met) and $4 million, respectively.

The Obama Administration also recently proposed further legislation to temporarily allow for the refinancing of owner-occupied commercial real estate loans under the 504 program. Currently, 504 loans cannot be used for the refinancing of maturing debt. This change would respond to the difficulties many current, solvent borrowers face in refinancing existing commercial real estate loans.

Under the proposal, businesses with a loan maturing in the next year and who are current on all loan payments would be eligible. Lenders that are refinancing mortgages for existing customers would make a loan for up to 70% of the current property value; and the SBA will help finance the remaining 20%.

For new lenders taking on a refinancing project, the SBA would take on a greater share of financing, up to 40%. The SBA’s proposal for a temporary, zero-subsidy commercial real estate refinancing program would be funded through additional fees for refinancing projects, not through a Congressional appropriation. This proposal will help refinance up to $18.7 billion each year in commercial real estate that might otherwise be foreclosed and liquidated.

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