Over the past couple of months, the SBA has announced several new loan programs in connection with the Small Business Jobs Act enacted September 27, 2010.
On February 28, 2011, the SBA began accepting refinance applications under the SBA 504 program. This is a temporary program which will expire September 27, 2012. Its purpose is to assist owner-occupied businesses with the refinancing of balloon payments due on their mortgages in the next two years.
In order to be eligible for the program, the loan must:
Banks can refinance their own debt with the 504 product provided the bank certifies that it has no knowledge of any default or indication of pending default. With this program, the bank finances 50% of the appraised value, the SBA finances 40% and the borrower contributes either cash of 10%, or must have at least 10% equity in the asset or provide equity in additional collateral. Closing costs (other than the 504 debenture costs) cannot be financed. The debenture Authorization, once issued, is only good for 6 months, so the 504 portion of the refinance must close in time to fund before the 6 month expiration date.
On February 10, 2011, the SBA announced the new dealer floor plan program. It will remain available until September 30, 2013. Any credit line approved prior to the September 30, 2013 expiration date may retain the five year maturity. Borrowers may refinance lines of credit with other lenders or replace existing lines of credit with the participating lender. Maximum interest rates will be the same as other SBA 7(a) loan programs.
The line of credit is secured by a first lien on all titleable inventory acquired with proceeds of the line. Lenders may charge the extraordinary servicing fees (over 2%) provided the lender can justify the charge (i.e., it is similar to the charge for non-SBA guaranteed floor plan lines of credit). Any lender with at least $1 billion in floor plan lines of credit in its current portfolio may qualify for delegated authority under the DFP program. Delegated floor plan lenders may use their own forms, policies, procedures and internal controls.
On February 15, 2011, the SBA rolled out the Small Loan Advantage Program. Itspurpose is to encourage larger existing SBA lenders to make lower dollar loans, which often benefit businesses in underserved markets. It has a maximum loan size of $250,000, provides an 85% guaranty for loans up to $150,000 and a 75% guaranty for those greater than $150,000. Loan applications must be processed through E-Tran and are often approved in a matter of minutes. Lenders may use their own loan documents.
1. SBA Lending Update<br />Alison Rind<br />Arnie Spevack<br />Lerch, Early & Brewer<br />
4. Property must be 51% owner occupied<br />Operating company must be 2 years old<br />Loan must be minimum 2 years old<br />Loan must have been current for previous 12-month period.<br />No payment deferred or past due for more than 30 days<br />Transcript required<br />Eligibility Basic Requirements<br />
5. No federal debt is eligible for refinance<br />No refi of 7a loan, USDA loan, tax-exempt bond-financing, existing 504 loan<br />All regular 504 economic development goals apply<br />Eligibility<br />
6. 3rd party lender loan – 1st trust, not less than 50%<br />SBA 504 Loan – 2nd trust, not more than 40%<br />Borrower contribution – not less than 10%<br />Loan Structure<br />
7. 3rd party lender loan and SBA 504 loan combined cannot exceed 90% of FMV of fixed assets securing the loan plus eligible soft costs.<br />Combined loans may not exceed the outstanding principal balance of debt being refinanced.<br />Loan Structure: Important<br />
8. If the amount of the new loan is not sufficient to pay off entire outstanding debt must disclose how balance of debt to be addressed<br />Loan Structure<br />
9. Forgive deficiency (but possible tax consequences to borrower);<br />Accept payment for all/part of deficiency;<br />Accept a new note for balance which will not be subordinate to the liens of the lender making the 504 companion loan and the 504 loan (but new loan will have to be on standby for 3 years); or<br />The borrower can post additional collateral<br />Lender of Original Debt May<br />
10. Cash<br />Equity in eligible fixed assets for the refinanced project<br />Equity in other fixed assets (may include commercial and residential real estate)<br />Borrower Contribution<br />
11. 85% of loan proceeds must have been used for 504 eligible purposes<br />100% of loan proceeds must have been used by operating company<br />Closing costs may be included<br />Use of Proceeds: Eligible Costs<br />
12. Initially not allowed as the program is currently being implemented<br />SBA still seeking comment as to how best to enact cash out provisions of the Jobs Act legislation<br />Use of Proceeds: Cash Out<br />
13. Borrower and 3rd party lender must certify as to the eligible use of proceeds<br />CDC and 3rd party lender must certify that they have no knowledge of borrower default or information concerning the likelihood of a default<br />Use of Proceeds: Certification Required<br />
14. Independent current appraisal and environmental required<br />Must comply with regular SBA requirements<br />Appraisal and Environmental Requirements<br />
15. Transcript of entire loan history (not just prior 12 months)<br />3rd party loan may not be sold on the secondary market as part of guaranteed loans being sold by lender.<br />Refinancing Same Institution Debt: SBA Requires <br />
16. 504 loan must be closed and funded within 6 months of SBA approval (or authorization will be canceled)<br />CDC must report any delinquency to SBA after loan approval which occurs prior to funding as an adverse change<br />Closing Issues<br />
17. 504 Financing<br />
18. Revolving lines of credit to acquire titleable inventory for resale<br />SBA provides 75% guaranty<br />Loans from $500K to $5M<br />Max advance rate 100%<br />Facility can mature between 1 and 5 years<br />New Dealer Floor Plan Program<br />
19. May refinance with other lenders or replace existing with participating lender<br />Secured by first lien on inventory acquired with line<br />May charge extraordinary servicing fees<br />Lenders with $1 billion may qualify for delegated authority<br />Line of Credit<br />
20. Encourage larger existing SBA lenders to make lower dollar loans, benefiting businesses in underserved markets<br />Max loan $250K<br />85% guaranty for loans up to $15OK<br />75% guaranty for >$150K<br />Processed through E-Tran<br />Small Loan Advantage Program<br />
21. No longer has to expire in the next year<br />Change in Requirement<br />
22. Alison Rind's practice is focused on representing commercial lenders in loan transactions and other commercial matters. These include participants in SBA and other government-guaranteed lending programs. Her experience crosses a broad spectrum of lending areas. In addition to government programs, she handles real estate and asset-secured loans, construction loans, foreclosures and loan workout arrangements. Her clients include large national and regional financial institutions as well as smaller community banks in the Washington, D.C., metropolitan area. <br />www.lerchearly.com/team/alison-w-rind<br />301-657-0750 firstname.lastname@example.org<br />Speakers<br />
23. Arnie Spevack represents individuals, businesses, lenders and borrowers in financings, closings, negotiations and in the courts. Arnie's experience includes all aspects of commercial lending, as well as providing assistance in the acquisition, development, operation and management of office, retail and residential projects. An experienced creditor's rights attorney, Arnie assists both borrowers and lenders in workout negotiations and helps them refinance existing real estate mortgages and business loans.<br />www.lerchearly.com/team/arnold-d-spevack<br />301-657-0749 email@example.com<br />Speakers<br />
24. Article on Changes: http://www.lerchearly.com/publications/376-sba-announces-programs-targeting-refinancing-balloon-payments-dealer-floor-plans<br />SBA Press Release Re Temporary Refinancing: http://www.sba.gov/content/sba-opens-temporary-refinancing-program-real-estate-mortgages-maturing-after-december-2012<br />Changes to 504 CDC Loan Program Re Debt Refinancing: http://www.sba.gov/sites/default/files/bank_5000-1197.pdf<br />Dealer Floor Plan Pilot Program: http://www.sba.gov/content/dealer-floor-plan-financing-program-0, http://www.sba.gov/sites/default/files/bank_5000-1195.pdf<br />Small Loan Advantage and Community Advantage: http://www.sba.gov/advantage<br />Submission of Form 159: http://www.sba.gov/sites/default/files/bank_5000-1200.pdf<br />3rd Quarter “Peg” Rate: http://www.sba.gov/sites/default/files/5000-1203.pdf<br />For More Information<br />
25. Lerch, Early & Brewer, Chtd.<br />3 Bethesda Metro Center, Suite 460<br />Bethesda, MD 20814<br />301-986-1300<br />www.LerchEarly.com<br />