SBA and Commercial Finance and Investment News

Since not all of us speak SBA, I am going to translate and simplify the bad news for you. 

The SBA guarantee fees are coming back effective today, right now, November 23^rd

You supposedly have an option to WAIT for stimulus funds by putting your loan in a Recovery Act queue, and if you do, and if Congress appropriates the funds, and if the administrative regulations get implemented in time, and if all the water on the moon unfreezes, begins to flow and Bermuda grass grows there to facilitate a new PGA tour stop, you may have fees waived on your loan.

Don’t hold your breath.  We are submitting all of our loans with the guarantee fee.  That way we actually have a chance to meet your deadline and the purchase closing date

OK, what ARE these new fees, which are really the OLD fees?

First let’s talk 7A: 

Loans between $150,001 and $700,000 3.00% of the guaranteed amount so 2.25 points on the TOTAL loan (See, if you want the math, $700,000 times 75% guarantee times 3 percent is $15,750 which is 2.25 points on the $700,000.)

Loans greater than $700,000 3.50% of the guaranteed amount which is 2.626 points on the total loan

(OK class so here:  $1 million loan, times 75% is $750,000, times 3.5% is $26,250.  Got it? And magically $26,250 is 2.625 points on the $1 million loan.)

AHA!  But here’s a wrinkle.  There’s an EXTRA charge if your GUARANTEE amount is over $1 million.  Let me work an example for you.  $1.9 million is the loan amount.  $1.9 million times 75% guarantee is $1,425,000, correct?  Now, $1,425,000 is $425,000 MORE than the $1 million the SBA is really wanting.  SO, on the EXTRA $425,000, charge 25 basis points Obama-Mills-Reid Override.  So the EXTRA is $425,000 x .0025 = $1,062.50.  Bottom line:  Borrower pays 3.5 points x $1, 425,000 which is $49,875, plus the Obama-Mills-Harry Reid Override, or OMOHRO (OK I made it up), of $1,062.50, so the TOTAL fee to the SBA is $50,937.50.  . Makes you want to abandon all attempts at capitalism.

Guarantee fees can typically be added to the loan and financed.   And that’s a good thing.  Surprise them at the end with the fee, that’s what I say, just add it to the loan amount it only increases the payments by a few dollars a month who will notice?

OK now here is the complex formula for 504 loans.  Pay attention.

The Guarantee Fee on a 504 loan is ½ of 1% on the SENIOR (bank funded) loan. So:  $4 million deal, of which $2 million is the BANK loan, $400,000, is the Equity Injection and $1.6 Million is the DEBENTURE.  What is the fee to guarantee?  Half a point NOT on the guaranteed loan, oh no, that would be too logical.  It’s on the BANK loan, so $2 million x .005 = $10,000.

It’s a bit less exciting than the Denver Broncos’ 4 – 0 surprise record.  And no surprise to any of us who originate and process SBA.  But the cumulative effect of credit concerns, credit officer conservatism, and the economic stimulus and personel cutbacks and collapse after collapse and consolidation in our well loved SBA industry had this scorecard for the Governments fiscal:  The  Small Business Administration guaranteed 44,221 loans for the FY ended September 30 2009 . That’s 36% DOWN  versus 2008. Total dollar volume also fell— Volume in Fy 2009 totaled $9.3 billion, a 27% drop.  Goodbye CIT, goodbye Bank of the West, Citi, Wachovia, regionals.  Thanks, Wells, at least YOU were there.  And so are about a hundred or som community banks, some ably represented by good quality consultants like Commercial Partners of Illinois.  www.commercialpartners.com.  Now there’s a plug!  Stay tuned.

The SBA’s 90% 7A guarantee and “no fees” are slated be part f the history books  at the end of this year.

 Earlier this year, the Small Business Administration set aside $375 million to temporarily eliminate loan fees and increase the agency’s loan guarantee to 90% for certain loans. The moves were part of the American Recovery and Reinvestment Act (ARRA), which was signed into law by President Obama in mid-February. So far, the SBA has used about 55% of those funds; they have translated to $6 billion in loans under the 7(a) and 504 programs. 

  The SBA expects the money to be depleted by December. So:  if you want a 7A loan, or lower fee 504, NOW would be a really good time to apply!  Use it or lose it! Loans made once the funds run out will only get a 75% to 85% guarantee, down from 90%. The decrease will make it tougher to get approved for a loan because lower guarantees raise a bank’s risk Email me at timothyethomas@gmail.com or tim.thomas@bankofthewest.com or call 303-801-1155. I am happy to assist.  

 So Why is credit STILL so tight?  If you are a banker and you are busy writing off or marking to market commercial real estate loans, as they al are, you are EATING UP your reserves.  So you set aside the TARP money, or whatever else you WERE going to lend out, to build reservice.  Otherwise you are going to be on the watch list.

It’s true, SBA lending is way off at the big shops, except for the Giant Stagecoach, according to USA TODAY last week.

The stats, year to date ’09:

Wells Fargo $353 million ( Up 1.9%)
PNC $85 million (-18.2%)
US Bank $181 million (-36.4%)
Wachovia (-49.9%)
JPMorgan Chase $43 million (-85.3%)
Citigroup $5 million (-86.2%)
Bank of America $10 (-89.7%)

But with 7A premiums still outlandish, community banks are building noninterest income – and taking advantage of the 109 price on some 7A guarantees in the past 10 days. Wow! The invisible hand will move mountains, and money — and the $15 B injection of TALF funds is headed our way. Stay tuned. Better times ahead, so they say…