Congress restores incentives to make SBA loans more attractive

Memphis Business Journal

Memphis Business Journal - by Kent Hoover

Congress … restored incentives that made Small Business Administration loans more attractive for borrowers and lenders.
The $636 billion defense bill that was signed into law Dec. 21 includes $125 million for the SBA, which the agency will use to increase the government guarantee on its flagship 7(a) loans to 90%. The funds also will enable the SBA to eliminate fees for borrowers on its 7(a) loans and 504 loans, which primarily finance real estate. This will return the guarantee and fees to where they were before Nov. 23, when the SBA ran out of the economic stimulus funds that enabled the agency to make these enhancements.
The new funding, however, is expected to last only through Feb. 28, 2010. The House, in a separate jobs bill, appropriated $354 million to keep the higher guarantee and lower fees in place through Sept. 30, 2010. That extension awaits Senate approval.
“We’re hopeful that it gets done,” said Tony Wilkinson, president and CEO of the National Association of Government Guaranteed Lenders.
…The SBA “needs to be stepping up and filling that void,” [Wilkinson] said. Given the constraints on bank lending, “this is pretty much the only game in town.”
The SBA’s normal guarantee on 7(a) loans ranges from 75% to 85%, depending on the size of the loan. The higher guarantee made SBA loans even less risky for lenders, and the fee reductions made the loans more affordable.
“These changes proved very effective at jump-starting small business lending, and the need to continue them is clear,” said Sen. Mary Landrieu, D-La., who chairs the Senate Small Business and Entrepreneurship Committee.
…The SBA set up a waiting list for borrowers and lenders who wanted loans with a higher guarantee or reduced fees if more money for these breaks became available. As of Dec. 21, there were 838 loans totaling $431 million sitting in the 7(a) loan queue, and 192 loans totaling $114 million in the 504 queue.
President Barack Obama, who urged Congress to renew the stimulus-funded breaks on SBA loans, also favors increasing the size limits on SBA loans. This, he said, would enable more businesses to expand and hire more workers as the economy recovers.
Landrieu’s committee approved legislation Dec. 17 that would increase the maximum size of 7(a) loans from $2 million to $5 million. The bill would increase the size limit on regular 504 loans, which are paired with conventional loans, from $1.5 million to $5 million. The loan limit for small manufacturers or projects that meet certain energy guidelines would increase from $4 million to $5.5 million.
This legislation also would allow businesses to refinance short-term commercial real estate into a long-term, fixed-rate 504 loan.
Kent Hoover is Washington bureau chief for American City Business Journals. He can be reached at (703) 816-0330 or khoover@bizjournals.com