Many lenders and experts in banking have been holding their breath until Congress extends key SBA loan enhancements that originally part of the 2009 stimulus package. The key provisions that impacted borrowers the most are:
- Increase from 75 percent to 90 percent loan guarantee to banks making SBA 7(a) loans.
- Provisions allowing the U.S. Treasury to pay loan guarantee fees for borrowers. Previously these very high fees (on average, 3 percent of the guaranteed amount of loan) were paid for by borrowers and wrapped into the loan. This made using the SBA loan program a very expensive proposition.
- Provisions making it easier for banks to securitize and sell the guaranteed loan portions of SBA loans.
There were a number of other technical provisions in the prior enhancement package, but the three provisions outlined above were the ones that helped banks feel comfortable enough to make SBA loans again. In November, the program ran out of money and the SBA allowed those borrowers who submitted applications to remain in a queue, in case more money became available. Right before Congress went on vacation in December, they extended the temporary enhancements until February 28, 2010.
Currently, Congress has a jobs bill it is trying to quickly pass that will provide tax incentives and other provisions benefitting small businesses. I believe this bill will be passed in some form before the end of February and that the widely successful SBA loan enhancements will be funded through the end of 2010.
This is good news for small businesses that need access to capital. A study I conducted in November 2009 confirmed my suspicions that only a small percentage of all banks set up as “preferred lenders,” under the SBA program, made more than four SBA loans during the 2009 federal fiscal year.
If you are in the market for an SBA loan it is critical that you use a lender that is well-versed in making SBA loans in you market. Lenders that only make a few SBA loans a year are not able to keep up with the ever-changing rules and SBA regulations. Choosing such a lender will cause your loan to take much longer and risk being turned down for reasons an experienced lender could have given you early on in the process. It may take a bit of work on your part but you will have to hunt down those truly active SBA lenders. Start by calling your district SBA office and getting a list of all lenders that made SBA loans in your district last year. They can provide you this information in an MS Excel spreadsheet, and you can use it to sort the lenders by the number of loans and size of loans. Pick a lender that has an average size close to what your loan request is. Be sure to talk to those banks that made more than 20 loans in your district. The ones I would avoid are those lenders that only made between one and four loans for the year, with a small average size.
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