Obama to Propose Temporary Expansions of Two SBA Lending Programs

Posted by: Nick Leiber on February 5, 2010

This afternoon President Obama is proposing that Congress pass two temporary expansions of SBA lending programs, according to a White House official. These are both legislative proposals designed to help small businesses access credit. From the email:

1. Expand SBA’s existing program to temporarily support refinancing for owner-occupied commercial real estate loans: Eligible small businesses will have commercial first mortgage loans or existing 504 first mortgage loans that are maturing in the next year. In order to qualify, businesses will have to be current on all loan payments for the previous year. Lenders that are refinancing mortgages for existing customers will make a loan for up to 70 percent of the current property value; and SBA will help finance the remaining 20 percent. For new lenders taking on a refinancing project, SBA will take on a greater share of financing, up to 40 percent. SBA’s proposal for a temporary, zero-subsidy CRE refinancing program would be funded through additional fees for refinancing projects, not through a Congressional appropriation. This proposal will help refinance up to $18.7 billion each year in commercial real estate that might otherwise be foreclosed and liquidated.

2. Temporarily increase the cap on SBA Express loans from $350,000 to $1 million:
The President is proposing to temporarily increase the maximum SBA Express loan size to $1 million, which would expand the program’s ability to help a broad range of small businesses. Unlike traditional 7(a) loans, lenders can use their own paperwork for SBA Express loans, which can be structured as revolving lines of credit. Currently, these Express loans are capped at $350,000 and carry a 50 percent guarantee. Fees would cover virtually all of the added costs of this proposal.

Today’s proposals follow announcements the president and Treasury officials made earlier this week, including a push for the creation of $30 billion fund for community banks and a separate initiative that will use up to $1 billion to provide low-cost capital to Community Development Financial Institutions.

Reader Comments

Carol Cross

February 5, 2010 5:01 PM

Hopefully, these initiatives are not merely a postponement of the inevitable failure of some of these commercial real estate loans and a further subsidy by the SBA of both small and big business ---and especially big business franchisors whose CEO's make thousands of dollars per hour because the employees of the franchisees, and, often the franchisees themselves, work for minimum wage with no employment benefits such as health insurance, sick pay, or vacation pay.

If you Google up failure of small business startups you can see that there is a consensus that all small business startups, whether independent or franchised, fail at a rate of 50% sometime within the first five years and less than a third are standing at the end of ten years.

For thirty years, the Congress/ the government through the SBA has been ignoring these grim statistics and have pushed short term solutions to restart the economy during the many recessions we have had over the past thirty years.

Is there no saturation point of commercial real estate and small business startups?

If you will read Mercutus on Banking and the SBA, Geoge Mason University, you see that the academics believe that only the banks and the lenders (and the franchisors?) really benefit from SBA loans over the long term because most SBA small business loans fail before the expiration of the term of the guaranteed loan.

http://thegreatfranchisingrobbery.blogspot.com/

Elaine Powers

February 8, 2010 1:42 PM

The banks will already loan money to "owner occupied" commercial real estate - (a TARP restriction). It's the small business community that lease property who have good credit, good assets, been around over ten years and are wanting to expand and hire more personnel who cannot get the funding right now.

Carol Cross

February 8, 2010 3:50 PM

Elaine:

If banks won't loan money to lease holders with good credit, it must be that they are worried about default by the REIT or whomever is carrying the loan on the building(s, or what?

I have read in BW that many commercial building loans will be due this year and defaults on some are a sure thing due to the saturation of this sector. Lots of empty commercial space out there, though, and how would default on the building directly impact you and prevent you from getting a loan?

Wouldn't your lease payments continue to be paid to the creditors in the event of default of the building owners to make their loan payments?

Deb M.

March 4, 2010 11:55 PM

Unfortunately, some lenders allow the SBA guarantee to stretch their comfort zone. I applied for a SBA Patriot Express Loan in 2008. When the seller threatened to back out of the deal unless she received a loan guarantee right away, the lender extended it anyway even though there had not been an appraisal yet. The bank waited until a few weeks before closing to order an appraisal. Every appraiser contacted refused to issue an appraisal on the property because it was too unique. They said they could not justify the price. At this point the bank wanted to back out, but the seller had already closed her business and auctioned off all her assets except the real estate. She threatened to sue us both if we did not go through with the deal. So the bank wrote the note. Due to the lack of an appraisal, they required my home as collateral too. We had a great business plan but we had not planned for a recession. The business closed after eighteen months. I went to an attorney to see if there was any way I could save my home from foreclosure. He said that the bank had a dragnet clause in the mortgages and I should start looking for somewhere else to live. My home was in a building where I had another business, so I lost that business too. I have had to move to another city and get a job. I can't get a mortgage since two foreclosures and a likely bankruptcy are looming over my head. There should be more oversight to be certain that these lenders are not taking advantage of borrowers. I have had numerous real estate loans from this bank and they have never made a loan without an appraisal before. They let the guarantee on the SBA loan loosen up their standards. As a result, I have lost my home and two businesses. The bank even had the nerve to tell my husband to take out a loan against his retirement account to make interest payments with so they could delay the foreclosure!!

SBA

March 17, 2010 8:32 PM

What happened with these SBA expansions? While they are not perfect, small businesses could use the opportunity - particularly the access to SBA 504 funds for plant expansion and commercial mortgage refinance.
Thanks for the article.

SBA 504 loans

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What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

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