Prevent Small Business Foreclosure Crisis
A message from Barbara Morrison, President of TMC Development:
PREVENT SMALL BUSINESS FORECLOSURE CRISIS AND JOB LOSSES
The stimulus bill encourages lending largely by decreasing borrower costs on new SBA loans. However, the needs of small business owners who have existing SBA financing have not been addressed. In the past 25 years over 100,000 entrepreneurs have purchased real estate for their businesses using the SBA 504 loan program. Immediate relief is needed for existing SBA 504 borrowers to prevent a commercial mortgage foreclosure crisis and massive job losses.
It is universally acknowledged that mortgage relief for home owners is a necessity to reduce residential foreclosures. The parallel problems associated with commercial foreclosures have not been considered.
With just minor changes to current SBA regulations or policy, we can help existing borrowers avoid foreclosure. These changes require zero funding and will make a profound difference in preventing commercial foreclosures and the accompanying job and tax revenue losses.
Many of today’s borrowers have discovered that their SBA loan has trapped them in a building they can no longer afford. In many cases, the property value is less than the total outstanding loans and there are virtually no buyers for these buildings today. For the thousands of small businesses currently struggling to make SBA loan payments, losing their building will mean shutting down their business and putting all of their employees out of work. In addition to exacerbating the home mortgage crisis, this is the antithesis of what SBA 504 loans are designed to accomplish – job creation and tax revenue – not job loss and business closure.
The changes to SBA loan servicing regulations we are proposing require no additional funds and they will dramatically improve the chances for our nation’s small businesses to continue operating in their buildings. We must take immediate action to prevent a major commercial mortgage foreclosure crisis.
PROPOSALS TO PREVENT SMALL BUSINESS
FORECLOSURE CRISIS AND JOB LOSSES
1. Proposal: Create pilot program to include CDC servicing fees in new loans when debentures are purchased by SBA. The CDC which originally processed the 504 loan will continue to work with the borrower and SBA to service the new loan.
Currently: SBA has ability to modify loan terms for borrowers by issuing Note Receivables. Currently the Note terms do not include CDC servicing fees for maintenance of the new SBA loan.
Purpose: Given today’s economic crisis, loan modifications are becoming increasingly necessary to prevent foreclosures. Unless the CDC’s role in maintaining servicing is continued for the new loan, current SBA staffing will not be sufficient to service the volume of new loans that the portfolio needs to remain viable.
2. Proposal: Extend unilateral authority for CDCs to offer 12 month loan deferments.
Currently: CDCs have unilateral authority to offer 6 month loan deferments to troubled borrowers. CDCs must apply for SBA approval to obtain a 12 month loan deferment.
Purpose: Due to current economic conditions SBA has become inundated with deferment requests. In the coming months requests will continue to increase dramatically creating a longer turnaround time for approval – a situation which does not benefit SBA or borrowers. Allowing CDCs to offer 12 month deferments will prevent the detrimental delays we will otherwise experience.
3. Proposal: Extend catch-up plan for deferments to spread the deferred amount over the remaining life of the loan.
Currently: Catch-up plan for deferments is structured such that deferred amount is spread over a 60 month payback period for borrowers.
Purpose: The 60 month payback period is difficult for borrowers in the current economy. Extending the payback period to the remaining life of the loan lowers the borrower’s monthly payment making the ongoing cost more affordable.
4. Proposal: Allow borrowers to use $35,000 ARC loans to make payments on SBA 504 first mortgage loans.
Currently: The 2/17/09 stimulus bill includes a provision for a new loan program, America’s Recovery Capital (ARC) (formerly the Business Stabilization Program), which will provide loans up to $35,000 to borrowers experiencing immediate financial hardship.
Purpose: Allowing borrowers to use ARC loans to make payments on their SBA 504 first mortgage loans will increase their chances for financial recovery and therefore help prevent foreclosures and job losses.