How the Stimulus Bill Affects SBA Lending

February 18th, 2009

How the Stimulus Bill Affects SBA Lending

A message from TMC President Barbara Morrison regarding those provisions in the 2009 stimulus bill signed by President Obama on February 17th, 2009 which affect SBA real estate lending programs:

Dear TMC Community,

By now all of you have heard about the stimulus package signed by President Obama yesterday. While we still do not have all of the details, I would like to explain how this will affect SBA real estate financing.

The good news is this – the package includes items which will have a very positive effect on SBA real estate loans. The provisions outlined below are intended to stimulate lending as well as decrease borrower costs, but clarification is needed before we can knowingly define the effects. TMC is committed to keeping you informed of these changes.

The next step is to wait and review SBA’s guidance as SBA was given the responsibility of determining the exact implementation parameters for the bill provisions. They are working as quickly as possible and we expect to have more information by early next week.

SBA Stimulus Package Highlights Include:

  • Allows small businesses to refinance existing debts, including SBA 504 loans, as follows:
    • Any 504 project “may include a limited amount of debt refinancing”
    • If the project involves expansion of the small business, an amount not to exceed 50% of the project cost may be refinanced, if:
      • Proceeds will be used to acquire land, to construct or expand building, or to purchase equipment
      • Existing debt is collateralized by fixed assets
      • Existing debt was incurred for benefit of small business
      • Proceeds will be used only for refinancing existing debt or costs related to the project
      • It will provide a substantial benefit when prepayment penalties, financing fees and other financing costs are accounted for
      • Borrower is current on all payments of the existing debt for not less than one year
      • New financing will provide better terms or interest rate
  • No out of pocket fees for SBA 504 and SBA 7a loans:
    • Reductions in SBA 504 borrower fees – Appropriated funds will pay fees for borrowers including the 1.5% loan processing fee and the .5% bank participation fee. The total 504 fees will now be only .65%, which is not paid out of pocket.
    • Elimination of out of pocket fees on SBA 7a loans

These fee changes will stay in effect until the appropriated funds have been spent.

  • Establishes an SBA Secondary Market Guarantee Authority – SBA will be permitted to provide up to $3 billion in guarantees for pools of first lien position 504 loans that are to be sold to third-party investors. The qualifying loans are first mortgage position, non-federally guaranteed loans made by private sector lenders.
  • Temporary increases in the guarantee percentage on SBA 7a loans – up to 90%

I will follow-up as soon as possible with accurate and detailed information as the particulars are made known. The bottom line is that the package includes numerous items which will have a very positive effect on SBA real estate financing. In the meantime please do not hesitate to contact me or any TMC staff with questions.

Best regards,

Barbara Morrison President TMC Development