SBA Announces Programs Targeting Refinancing Balloon Payments, Dealer Floor Plans and Lower Dollar Loans
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.
Balloon Payments for Owner-Occupied Businesses
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:
- Be secured by real estate occupied 51% by the borrower
- Mature prior to December 31, 2012
- Be at least two years old
- Have payments current over the last 12 months
- Have used 85% of the loan proceeds from the original loan to acquire the real estate or equipment and
- Not be a federally guaranteed loan
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.
New Dealer Floor Plan Program
On February 10, 2011, the SBA announced the new dealer floor plan program. It will remain available until September 30, 2013. Under this program, the SBA provides a 75% guaranty. The loan amounts can vary from $500,000 to $5 million. The maximum advance rate is 100% and the facility can mature between one and five years (any credit line approved prior to the September 30, 2013 expiration date may retain the five year maturity). These are revolving lines of credit for the acquisition of titleable inventory for resale. 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.
Small Loan Advance Program
On February 15, 2011, the SBA rolled out the Small Loan Advantage Program. Its purpose 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.
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. For more information about SBA lending, contact Alison at email@example.com or (301) 657-0750.