SBA Program “Enhancements”

by Scott Ramsey on March 23, 2009

On Monday March 16, the President announced some changes to the SBA’s lending programs as a part of his economic stimulus program. These changes have all been discussed for weeks, however I thought it would be a good idea to summarize the key items here:

First, for loans approved on or after February 17, 2009, SBA will temporarily eliminate the upfront guaranty fee, which is customarily paid by the borrower. This will include all loans made under the SBA 7(a) program. If the fee has already been paid, SBA will refund the fee. SBA will eliminate upfront guaranty fees until the aggregate dollar amount of 7(a) loans made under this authority exhausts the funds dedicated to this purpose. SBA estimates that will take place by December 31, 2009. Most in the industry believe that this will have very little impact since fees have not really been a deterrent for most SBA borrowers.

Second, the guarantee percentage has been increased from 75% and 85% to 90%. This means (or hopefully means) that banks will be in a position to take on increased risk since they will have less to lose in the event of a default.

Third, the treasury will pump money into the secondary market by purchasing securities backed by SBA loans from the SBA 7(a) program. This in my opinion stands to have the most effect on freeing up credit markets since a good many SBA lenders sell their loans in the secondary market using it as a source of both liquidity and income.

The impact of these changes remains to be seen and only time will tell. It is still disconcerting that SBA would make changes in their program that actually impede new business (the recent goodwill limitation) while the administration announces, with much fanfare these “improvements” to the program. We must all continue to put pressure on our elected officials to reverse the recent goodwill limitations so that the enhancements brought about by this administration can have their full effect.