SBA and Commercial Finance and Investment News

The  SBA has now, officially, permanently increased 7(a) and 504 limits from $2 million to $5 million, and for manufacturers and certain energy- related projects seeking 504 loans, to $5.5 million.

Other programs – mico loans, Export and Express have been increased as well.

Under the new law,  SBA 7(a) loans are  increased from $2 million to $5 million, and SBA 504 loans can now go up to a total loan amount of $12 million between the first lien and the debenture (second).  This means a great influx of midsized businesses to the government guaranteed loan market.

And the 504 program can facilitate REFINANCES.  It’s a great program — with a 20 year fixed rate second from your local CDC and a first that adjusts typically every 5 years on a 25 year schedule.  Wow.  Get on the phone and call your customers.

The SBA fee waiver for borrowers and 90 percent guarantees under 7A have been extended through 31 December.  Yeah!  .”

Get in the GAME.  Learn about origfnating SBA and find out about the fee and growth opportunities — fees if you sell the whole loan — growth if you intelligently keep a portion of the risk.

First, the bad news:  the economy is still, to be generous, sluggish.  My compadre Lou Barnes writes,

” One of these monthly payroll reports will signal a turn in the economy to self-sustaining growth, and splatter the bond and mortgage markets all over the windshield.”

Not today.  Economic reports weaker than expected included the New York Fed Empire State Manufacturing Index, August Industrial Production, August Capacity Utilization, the September Philadelphia Fed Business Index, and the University of Michigan Consumer Sentiment Index.  The August Consumer Price Index (CPI), a measure of inflation, was up 0.3% on expectations that it would be up 0.2%.  Year over year, though, CPI is up just 1.1%.  Excluding food and energy, core CPI is up just 0.9%.

The Dow Jones Industrial Average is currently at 10,589, up slightly over 100 points on the week.  Crude oil futures are currently trading at $73.35 per barrel, down over $3 per barrel on the week.  The Dollar weakened versus the Euro and strengthened versus the Yen on the week.

Depressed?  Don’t be.  We are all waiting for SB 5297 to add volume for the SBA world, and JOBS JOBS JOBS.  And FINALLY it looks like the House will listen and the Senate version may pass.  Here’s the latest per my colleague Jordan Blanchard at CDC Small Business Finance in Pasadena:

the following bill (HR 5297) is expected to be on the President’s desk.  It will dramatically increase 7A production and double 504 production across the country.

SBA 7A Provisions

• Increase to maximum SBA 7a loan amount to $5,000,000
• 90% guarantee through December 31, 2010
• Fee waiver for the rest of 2010 (subject to available funding)

SBA 504 Provisions

• 504 Debenture increase to $5,000,000 for most applications and $5,500,000 for

`manufacturers

•  Two year window for refinancing debt (details provided below)
• 504 Debenture increase to $5,000,000 for most applications and $5,500,000 for program from the date of the first pool issuance – first pool issuance expected to be September, 2010
• Fee waiver for the rest of 2010 (subject to available funding)

First Mortgage Pool Program Update

• The extension to the FMP program was critical as FMP program which allows us to sell the FIRST lien portion of the 504 at prices around 105.
• That program was set to end in February, 2011. The new sunset date is slated to

be September, 2012, or $3B in allocation – whichever comes first.

• Increased 504 activity by community banks due to capital, liquidity and regulatory relief.
• Community banks can now compete against larger banks by offering lower rates and longer fixed periods while achieving an above market yield.
• ncreased 504 volume by non-bank lenders who can sell 85% of each loan.
• A significant increase in wholesale liquidity for special purpose properties such as hotels, gas stations, car washes, and restaurants.
• A new industry of Pool Originators who are the first participantsin the new era of ‘skin-in-the-game’ securitizations.
•  Interest in the SBA 504 wholesale first mortgage market (post FMP) by the nation’s largest banks including Bank of America Merrill Lynch.
• Significant increase in volume for CDC’s from both bank and non-bank lenders.
• A new era for those CDC’s that choose to become a secondary market resource for their first mortgage partners.

The Credit Union SBA Investing webinar has been moved to August 26 because of the Mid America SBA secondary market convention this week.

Wondering how smart it is to invest in government guaranteed loans?  Want to get some questions answered?  Unsure about how to deal with prepayment risk?  Get the answers from the experts on Thursday, August 26 at 8 AM Pacific, 9 AM Mountain, 10 AM Central and 11 AM Eastern time.  Here’s the dial in data:

For participants:

Join: https://bankerstuff.ilinc.com/join/yspjfkr

Primary Dial-In: 1-888-394-8197
Passcode: 114628

You presenters will include Tim Thomas, author of the recent White Paper on government guaranteed loan investing for credit unions; Karen Bean, Senior institutional sales representative for Signature Securities, and Executive Vice President Mary Mims.  The presentation and Q&A should be about half an hour.  For more information, contact Tim Thomas at Isaak Bond, 303-623-7500, tim@isaakbond.com

Once more, the return of dreaded guarantee fees (up to 3.75% of the guarantee on 7A loans and 50 BP on the senior 504) has been delayed — so the rush is on yet again to get your guarantee, this time  by 31 May. The Senate  voted to extend the Recovery Act Program through May 31, 2010 and provided $80 million for 7(a) and 504 fee reductions/waivers. It has also extended the 90% guarantee on the 7A  through May 31st. It is expected that President Obama will quickly sign this legislation into law.

The first 504 pool should be ready to roll by the end of May — SBA is in last minute talks with Colson, the master servicer.  Stay tuned!

The following  is courtesy Mike O’Donnell, head of Colorado Lending Source (www.coloradolendingsource.org) , Colorado’s leading CDC and #12 in the USA. (quite an accomplishment considering Colorado’s rather diminutive population base, wouldn’t you agree?)   If ever you want the best 504 training for your teams, or 7A training, or a 504/7A processing facility, I recommend CLS,  I use them (yes and I have office space next door).  So, commercial over, here is the news:

Yesterday, March 25th, some new SBA-specific legislation was introduced and passed by the House of Representatives using their unanimous consent provisions and then, that same evening, the exact same bill was introduced and passed by the Senate the same way.

The very simple, two-paragraph bill, HR 4938, provides another extension to the Recovery Act SBA loan provisions, extending them now from March 28th through to April 30th.
This extension will allocate up to $40 million in pre-budgeted funds for 7(a) and 504 fee reductions / waivers along with (more importantly) the 90% 7(a) guarantees. 
It is expected that the President will quickly sign the legislation into law.

“Everything, everything ends,”  says the New Moon theme by Death Cab for Cutie.  So it was for SEVEN more banks last week.

Want to know what a bank failure and receivership is really like? Well, they say Friday night is the time the FDIC closing team will show up at your main branch.  Once the senior site agent meets with the Bank president, and the first platoon from the FDIC has secured the cash and begun a count, the remainder of the FDIC takeover team  and subcontractors will show up.  Oh, yes,  and the  CURRENT bank employees are deputized as temporary FDIC employees.   But the influx from the FDIC is huge.  Figure one agent per $5 MM in assets.  $400 million bank, 80 polite, briefcased, laptop flipping, well dressed people show up, all at once.  And along with them, the president of the receiving bank.   Three days later the failed bank is open – with a new name.  FDIC examiners and agents head personnel, operations, lending, investigations, accounting, file review, and other functions  until the receiving bank has its personnel in place and  the dance is  done with the precision of a fine watch.  Visit http://www.npr.org,  click on This American Life and download Ira Glass’ recent podcast entitled “Scenes from the recession.”  It’s  first hand takeover account of a small community bank in Washington State and the drama behind the numbers is poignant, to say the least.   So if you’re not a numbers guru you may be interested in the human side of the bank closure business.

We are seeing some glimmers of light, if not portions of the Glory Train of Recovery, in the tunnel. 

lationHousing starts and building permits last month are holding steady in the 550,000 to 650,000 range, rather than deteriorating further, that’s a good thing.  Industrial production rose 0.1 percent in February, while capacity utilization rose to 72.7 percent. That was the eighth month in a row of improvement in the utilization rate. It’s now at a 14-month high.  So maybe we might have to increase capacity.  We might have to, uh, GROW. Why, by golly, the FED might have to raise the discount rate again.  Not In-flation, really, or STAG f, but re-flation.  The air is coming back into the balloon.

NO thanks to the SBA, of course, because ONCE AGAIN the Agency is OUT of money to subsidize guarantee fees and once again 7A borrowers will have to pay big time — up to 3.75% of the guarantee amount,  for a 7A loan — and HLFA A POINT on the SENIOR 504 loan.  We are bouncing back to the dark side yet again because of inaction in Congress.  And you can forget about higher 504 and 7A limits, at least for a while. 

YES, dear readers,  our community banks — those long-suffering bankers conventioning last week in Orlando, and their minions — are getting told to lend, not to lend, told the SBA is there to help, but not really.  They are all struggling and all wondering how to show some solid earnings — which is why my white paper is coming out this week — “Four ways to ramp up fee income without growing assets (or adding to credit risk). ” Stay tuned for that!

Yours truly is leaving Horizon West  Partners, LLC on April 1 to run his own firm, called Silverline Advisors, to provide loan placement and secondary marketing services to those same community bankers  — services they in turn can deliver for a fee to their customers on a concierge desk model.  It’s pretty cool if I do say so myself.   I believe that commercial and SBA loan placement is OVERPRICED and you really CAN deliver what used to cost 100 basis points in broker fees for a fraction of that — anyway, that’s my new model.  Email me at tim@silverlineadvisors if you’d like a copy of the white paper.

Retail sales rose 0.3 percent, while “core” sales excluding autos climbed 0.8 percent. Both figures topped estimates.

Per my colleague Mike O’Donnell, head of Colorado’s tremendous CDC, Colorado Lending Source (Check out their Website www.coloradolendingsource.org) this is the sad and lukewarm news.

Loans submitted to the SBA that have not yet been approved or loans that are in the process of being submitted to SBA for approval, are now being placed in a “recovery act” queue anticipating the return of subsidization in the near future.  Translation:  Be prepared to pay the GUARANTEE FEES see the archives on SBA Finance News if you need a refresher course.  Fees are up to 3.5% OF THE GUARANTEE AMOUNT  on 7A loans (and higher on loans over $1MM)  and 0.5% on the SENIOR part of 504 debt (the Bank loan not the Debenture).   You never know, the stimulus may be BACK but it’s ALL DRIED UP now.

And if you are waiting patiently for SB 2869, Mike says, be patient.

S. 2869:
This Senate Bill would increase loan limits on both the SBA 7(a) and 504 loan programs and also provide other enhancements including, most importantly, allowing the 504 program to refinance eligible conventional loans up to 80% LTV.

The Bill would have a zero impact on tax payer funds and currently has 21 co-sponsors.

We need it.  The President wants it.  Smart Republicans want it.  Let’s go.  Write Udall and Bennett.

The Treasury reported Thursday that  the top 30 banks in the US – many the target of the Obama administration – are really cutting back – and continue to do so – in business lending.  They want their commercial loan portfolio – and its concomitant risk – to roll off the books.  As a whole, the major banks’ small business lending balance FELL  by another $1 billion in November 2009.  That is the seventh straight month of declines. The 22 banks that got the most help from the Treasury’s bailout programs have cut their small business loan balances $12.5 billion since April.  Not surprising if you have tried to get a deal – a 504 or a 7A, even with a guarantee – approved lately.  Credit people continue to run scared.  If you do not have a 125 or better DSCR on the 08 and 09 EBITDA numbers, or if you have a downtrend of more than a few percentage points in sales, look out.  It’s the waste can for your deal.

But remember, as Virgil said, or was it Caesar, ” Per aspera ad astra,” through hardships to the stars.  We will get through this.  Solvitur ambulando. show it can be done by doing it.

So —  if you visit www.coloradolendingsource.org, you can still sign up for the SBA7A training webinar FOR FREE on Thursday, February 11 at 9:30 MOUNTAIN time.   Or email me at tim@horizon-west.com I will send you the details.

Are you ready for the return of Wall Street as we once knew and loved it?  Investment bankers, at least a handfull, are stepping forward this month to pool senior 504 loans (companion loans) the senior part of which is guaranteed, ie, translation, AAA. 

Under the new program, portions of eligible 504 first mortgages pooled by originators or broker dealers could be sold with an SBA guarantee to third-party investors in the secondary market. Lenders will retain at least 15 percent of each individual loan, pool originators will assume 5 percent of the risk, and the SBA will guarantee the remaining 80 percent. To be eligible to be included in a pool, the first mortgage must be associated with a 504 loan disbursed on or after Feb. 17, 2009. The program will be in place until Feb. 16, 2011, or until $3 billion in new pools are created, whichever occurs first.