SBA 7(a) 90 percent guaranty is back

The SBA has just announced that for 7(a) loan applications that are in the 7(a) Recovery Loan Queue, SBA will approve these loans with a 90 percent guaranty in addition to fee relief as soon as funds become available (expected on or after October 1, 2010).

This will relieve lenders of the need to withdraw loans from the Queue and resubmit them in order to receive the higher guaranty. SBA believes that most, if not all, lenders will prefer the higher guaranty that is now available under the Small Business Jobs Act.

This of course contradicts previous SBA guidance that you could NOT submit a loan into the queue for the higher guaranty.

This increased guaranty and guaranty fee waiver expires on December 31, 2010.

For a copy of the notice, go here- http://www.sba.gov/idc/groups/public/documents/sba_program_office/bank_5000-1173.pdf

Banks Keep Failing, No End in Sight

From today's Wall Street Journal:

http://online.wsj.com/article/SB10001424052748704760704575516272337762044.html?mod=WSJ_hpp_MIDDLTopStories

As more and more banks fail, more and more of them turn to SBA lending. The SBA hopes to see at least 1,000 new banks become SBA 7(a) lenders.

So far we have helped several small community banks set up and run their SBA departments.

The SBA and ending the recession ONE LOAN AT A TIME

Today the President signed the Small Business Jobs Bill.

For more go here-
http://www.whitehouse.gov/the-press-office/2010/09/27/background-small-business-bill-signing-today

The SBA and ending the recession one VOTE at a time

Today is the first DAY of autumn.

For those of you who thought it was yesterday, it technically was Wednesday September 22, 2010 at 11:09 PM ET.

It is also the start of a whole new season for SBA loans.

HR 5297 passed today by the House of Representatives and will soon be signed by the President

This legislation will

-IMMEDIATELY waive SBA loan fees for SBA 7(a) and 504 loans through December 31, 2010
-IMMEDIATELY provide SBA 7(a) lenders with a 90 percent guaranty through December 31, 2010

-SOON increase the maximum SBA 7(a) loan amount to $5,000,000
-SOON increase the maximum 504 debenture amount to $5,000,000
-SOON allow 504 loans to be used for the refinance of commercial real loans for the next two years
-SOON increase the definition of a small business to be a company with net profits less than $5,000,000.

The difference between IMMEDIATELY and SOON is how long it will take SBA to actually write the rules for the new changes.

There are only 99 days left in the year.

The SBA and the Fed

The Federal Reserve Open Market Committee met today and they said that they will continue to keep interest rates low for an "extended period."

So how long is an extended period? For that answer go here-
http://idosbaloans.blogspot.com/2010/06/when-will-fed-raise-rates.html

For the text of the Fed's release go here-

http://www.federalreserve.gov/newsevents/press/monetary/20100921a.htm

SBA 504 debenture rate

SBA 504 Debenture Rate for September
The debenture rate is 3.21% but note rate is 3.26% and effective yield is only 4.62%.

SBA 7(a) Rate Update

Indices:
PRIME RATE= 3.25%
SBA LIBOR Base Rate September 2010 = 3.26%
SBA Fixed Base Rate September 2010 = 5.36%
Rates can go up to 2.75% over these indices.

SBA 7(a) Weekly Lending Update

There are less than two weeks left in the SBA's fiscal year.

Through September 17th, SBA has approved $12,400,530,000 in SBA 7(a) loans. While this is a substantial increase in lending volumes over the last two fiscal years, it is only a $137,592,000 increase over the prior week.

On annualized basis, that is substantially less than last fiscal year.

The drop in volume can be attributed to many lenders now waiting for passage of HR 5297 which will once again temporarily increase the percent of guaranty to 90 and waive the guaranty fee.

The SBA and ending the recession one VOTE at a time

Senate PASSES Small Business Jobs & Credit Act (HR 5297).

The US Senate just passed HR 5297.

The bill now returns to the House, which is scheduled to recess this evening. Given recent press comments by Speaker Pelosi, it is expected that the House will take up the Senate version of HR 5297 quickly.

That means increased SBA loan sizes. It also means fees will be waived through the year!

Ahead of the yield curve

Good news abounds today.

The yield curve is getting even steeper.

Longer-term Treasuries fell, pushing the 30-year bond yield to a one-month high, as reports on Philadelphia manufacturing and U.S. initial jobless claims eased concern that the economic recovery is stalling.

The yield on the 30-year bond increased 8 basis points, or 0.08 percentage point, to 3.95 percent.

The SBA and ending the recession one VOTE at a time

Senate Set to Approve Tax Cuts, Eased Credit for Small Business

From Bloomberg- http://noir.bloomberg.com/apps/news?pid=20601087&sid=aTGmKA3f69xU&pos=9

Voting on HR 5297 is starting now.

The SBA and hoarding

If you make the mistake of watching the wrong channels on TV, you’d think the biggest problem facing the nation is hoarding. Public awareness of the condition has recently experienced an increase with the launch of two competing reality television programs about the subject, Hoarders and Hoarding: Buried Alive, airing on the A&E and TLC networks respectively.

Is it coincidence that the new SOP now allows SBA financial assistance for self-storage facilities?

SBA has dramatically changed its thinking on “passive income”.

For example, under previous guidance, businesses such as self-storage facilities were ineligible for SBA financing unless more than 50% of their revenue was from sources other than rent (the “sufficient services” test). The new guidance in SOP 50 10 5(C) eliminates the “sufficient services” test in order to make SBA loan guarantees available to more of these types of businesses.

That means self-storage facilities are now eligible.

SBA 7(a) Weekly Lending Update

With only two weeks left in its fiscal year, SBA lending looks to close out with SBA 7(a) lending volumes greater than 2008 or 2009.

Through September 10th, $12,262,938,000 in SBA 7(a) loans have been approved by SBA.

That is an increase of only $144,184,000 over the prior week.

The new SBA year that starts October 1st should kick off well as enhancements provided by HR 5297 should be in effect by then.

The SBA and the Fed- capacity utilization

Production in the U.S. cooled in August as automakers scaled back following a surge in output the prior month.

Industrial production increased 0.2 percent last month after rising 0.6 percent in July, figures from the Federal Reserve showed today. Manufacturing expanded 0.5 percent excluding autos, the most since May.

Capacity utilization, which measures the amount of a plant that is in use, increased to 74.7 percent last month. It was 74.6 percent in July. The gauge averaged 80 percent over the past 20 years, showing there’s enough spare plant equipment and space to prevent bottlenecks that would lead to higher prices.

For a copy of the complete release, go here- Industrial production and Capacity Utilization

What does this mean?

This is the highest level for industrial production since Oct 2008, but production is still 7.2% below the pre-recession levels at the end of 2007. Capacity utilization at 74.7% is still far below normal - and well below the the pre-recession levels of 81.2% in November 2007. The all-time low was 69.9% back in August of 2009. This was the lowest ever.

We aren't even half way out of the hole yet.

The SBA and ending the recession one VOTE at a time

Senate Small Business Bill Passes 61-37

Today the Senate voted 61 to 37 to pass a motion to invoke cloture on Substitute Amendment to H.R. 5297, the Small Business Lending Bill.

A vote on final passage will hopefully be done by the end of the week, after which the bill would then move back to the House of Representatives for a vote before going to the President.

The House could delay the process with votes and amendments, but it is expected that they will pass what the Senate sends to them.

The SBA and the Fed

This could be a prelude to tomorrow's release on Industrial Production and Capacity Utilization from the Federal Reserve.

Press Release:
The Ceridian-UCLA Pulse of Commerce Index™ (PCI) by UCLA Anderson School of Management fell 1 percent in August.

This is the UCLA Anderson Forecast and Ceridian Corporation index using real-time diesel fuel consumption data: Pulse of Commerce IndexTM

In July, the capacity utilization rate for total industry moved up to 74.8 percent, a rate 5.7 percentage points above the rate from a year earlier but 5.8 percentage points below its average from 1972 to 2009.

One of the Federal Reserve’s favorite gauges of the economy is the capacity utilization rate. The Federal Reserve watches capacity utilization rates to see if production constraints are threatening to cause inflationary pressures. Bottlenecks or shortages often lead to inflationary pressures that would drive prices even higher. Several analysts have pointed to a rate between 81% and 82% as a tipping point over which inflation is spurred.

Should capacity utilization stall or even fall, it may prompt concern from the Federal Reserve when they meet in two weeks.

As a result, the interest rate savings from a low variable rate of interest available from a SBA 7(a) loan should persist for some time.

The SBA and small business optimism

From NFIB: Small Business Confidence Remains Low

The National Federation of Independent Business Index of Small Business Optimism gained 0.7 points in August*, rising to 88.8. Most of the improvement was accounted for by gains in expected real sales and expectations for business conditions six months out, the two components that lowered the index in July. But despite their improvements, both measures are still in recession territory. “Small business owners are expecting sub-par growth in the second half of 2010,” said Bill Dunkelberg, NFIB’s chief economist.

SBA 504 debenture rate

SBA 504 Debenture Rate for September
The debenture rate is 3.21% but note rate is 3.26% and effective yield is only 4.62%.

The SBA and nescient

nescient
NESH-uhnt, NESH-ee-uhnt, NES-ee-uhnt
Lacking knowledge or awareness.
From Latin ne- (not) + scire (to know).
_____________________________________________________
TIP OF THE WEEK
Nescient SBA lenders and borrowers don’t realize that the rules of the game are changing.

SBA has released a new SOP that will be effective October 1, 2010.

There are several changes with this new SOP.

For example, historically, a 7(a) lender could not finance Other Real Estate Owned (OREO) with a 7(a) loan because SBA perceived this as self-dealing. Now these same lenders can finance their OREO with a 7(a) loan. They always could with a 504 loan.

In addition, the definition of a passive business has changed. Under the previous guidance, these businesses were ineligible for SBA financing unless more than 50% of their revenue was from sources other than rent (the “sufficient services” test). The new guidance eliminates the “sufficient services” test in order to make SBA loan guarantees available to more of these types of businesses. Does that mean mini-warehouses are eligible?

For business acquisitions, the lender has to verify the financial information relied upon in the business valuation.

Other changes may soon happen. Legislation to increase the SBA loan limit on a 7(a) loan to $5,000,000, temporarily allow 504 loans to used for debt refinance, and increase the SBA 7(a) guaranty to 90 percent and waive the guaranty fee through the end of the year may be considered this week. If it passes by the Senate, it still needs to be reconciled with the House and then go to the President. The House however does not come back from their summer vacation until next week.

SBA should also soon make official the “alternative size” standard for 7(a) loans. What is the alternative size standard? Under SBA's 504 program, a business concern can not have tangible net worth not in excess of $8.5 million and average net income after Federal income taxes (excluding any carry-over losses) for the preceding two completed fiscal years not in excess of $3.0 million

It sounds like another whole new SOP will have come out again.
_________________________________________
Indices:
PRIME RATE= 3.25%
SBA LIBOR Base Rate September 2010 = 3.26%
SBA Fixed Base Rate September 2010 = 5.36%
________________________________________________

504 Debenture Rate for August
The debenture rate is 3.52% but note rate is 3.57% and effective yield is only 4.93%.
________________________________________________
AHEAD OF THE YIELD CURVE

The yield curve is getting a little steeper.

Last Thursday, the 30-year bond yield gained 11 basis points to 3.84 percent as the government sold $13 billion of the long term bonds. It fell on August 25th to 3.46 percent, the lowest level since March 2009.

Is the bond market telegraphing hope about the economy?

Keep your eye on Wednesday’s release by the Federal Reserve on Industrial Production and Capacity Utilization for the month of August.

In July, the capacity utilization rate for total industry moved up to 74.8 percent, a rate 5.7 percentage points above the rate from a year earlier but 5.8 percentage points below its average from 1972 to 2009.

Here is what capacity utilization rates have done:

1997- 83.6
1998- 83.0
1999- 82.4
2000- 82.6
2001- 77.4
2002- 75.6
2003- 74.6
2004- 79.2
2005- 80.7
2006- 82.4
2007- 81.5
2008- 79.9
2009- 69.9
2010- 74.8


What does all this mean?


I don’t know.


One of the Federal Reserve’s favorite gauges of the economy is the capacity utilization rate. The Federal Reserve watches capacity utilization rates to see if production constraints are threatening to cause inflationary pressures. Bottlenecks or shortages often lead to inflationary pressures that would drive prices even higher. Several analysts have pointed to a rate between 81% and 82% as a tipping point over which inflation is spurred.

Capacity utilization at 74.8% is still far below normal - and well below the the pre-recession levels of 81.2% in November 2007.

That means we still have a long way to go before interest rates really start to go up.
_________________________________________________
OFF BASE
The rules are always changing.

As a matter of fact, today is the anniversary of the the Knickerbocker Rules formalized by Alexander Cartwright in 1845 on September 13th. They are considered to be the basis for the rules of the modern game of baseball.

The rules consisted of twenty general guidelines to the rules of baseball. Several of the rules are still around in some form today, while others are in direct contrast to current rules.

For example, the 10th rule stated- A ball knocked out of the field, or outside the range of the first and third base, is foul.

A ball knocked between the baselines and beyond the field was not initially a home run but a foul, to be ignored (after finding the ball). The early ball fields had very deep fences (if any) and an over-the-fence knock was an unlikely event.

It wasn’t until 26 years later that the home run became part of the game.

The first home run hit in MLB history was by Ezra Sutton of the Cleveland Forest Citys on May 8, 1871 against the Chicago White Stockings in the National Association. Sutton hit a second home run in the game to be the player to hit the first and second home runs in MLB history. What a great trivia question! Uncle Ezra, as admiring Boston fans called him, was considered one of the greatest third basemen of all time. While with the Athletics he made the first error in the first National League game ever played. If you are wondering what kind of name Ezra is, it is a book in the Old Testament. Ezra was a Jewish priestly scribe who led about 5,000 Judean exiles living in Babylon to their home city of Jerusalem in 457 BC.

Home runs keep the game interesting these days.

A Diamondbacks error in the top of the ninth allows Jason Giambi to come to the plate with two out and a man on first in a 2-2 game. He reaches down for a pitch low on the outside corner and drives it over the fence in centerfield. The Rockies walk off to their tenth win in a row, 4-2. Giambi has four hits this month, three of them homers.

The Rockies pulled within 1 1/2 games of first place in the NL West. San Diego comes into Coors Field for a three-game series starting Monday night. With a few more wins and some help from the Dodgers, who play the Giants beginning on Tuesday, the Rockies could soon move into first place.

Only 10 days until summer officially ends. And there are only 109 days left in the year.

SBA 7(a) Rate Update

Indices:
PRIME RATE= 3.25%
SBA LIBOR Base Rate September 2010 = 3.26%
SBA Fixed Base Rate September 2010 = 5.36%
Rates can go up to 2.75% over these indices.

The SBA and the new SOP

In August of 2008, the SBA released the SOP 50-10(5). On March 1, 2009, they released the SOP 50- 10 5(A). On October 1, 2009, they released the SOP 50- 10 5(B).

The SBA has released yet another version, SOP 50- 10 5(C) which will be effective October 1, 2010.

This latest version of the SOP has some noteworthy changes.

For example, businesses such as hair salons nail salons, dance studios and others often rent space to the tradesperson and then handle advertising, hiring cleaning services and the sales of merchandise. Under the previous guidance, these businesses were ineligible for SBA financing unless more than 50% of their revenue was from sources other than rent (the “sufficient services” test). The new guidance eliminates the “sufficient services” test in order to make SBA loan guarantees available to more of these types of businesses.

Another change is the financing of Other Real Estate Owned (OREO) with a 7(a) loan.

The new SOP right there on page 141 now states:

B. Loan Proceeds May be Used to Finance a Lender’s Other Real Estate Owned (OREO):
Where loan proceeds will be used to finance the purchase of real estate owned by the 7(a) lender making the loan, the application must:
1. Be submitted to the LGPC (delegated authority may not be used to process these applications);
2. Include an independent real estate appraisal that meets the requirements found in Chapter 4 of this Subpart (the appraisal requirement cannot be delayed until loan closing), and that provides the liquidation value of the real estate;
3. Identify the lender’s cost in the real estate, including any expenses directly associated with acquiring and maintaining the property. The use of proceeds attributable to the purchase of the real estate may not exceed the liquidation value or the lender’s cost, whichever is less; and
4. Include an explanation of the circumstances surrounding the lender’s acquisition of the real estate. If the acquisition of the property was triggered by a business failure at that particular location, the lender must submit a detailed explanation of why the new small business borrower will succeed at that same location.

SBA Loan Basics for Borrowers- What is the Guaranty Fee?

What is the SBA guaranty fee?

A lender must pay a fee to SBA for each loan guaranteed under the 7(a) program. This fee is known as the ―SBA Guaranty Fee.

Think of it as like an insurance premium. SBA uses these fees to pay for when they have to honor the guaranty for a lender.

The total loan amount determines the percentage that is used to calculate this fee. The guaranty fee is based on the guaranteed portion of the loan and not the total loan amount.

For Loans of $150,000 or less the guaranty fee is 2% of guaranteed portion

For Loans between $150,001 to $700,000 the guaranty fee is 3% of guaranteed portion

For Loans between $700,001 to $2,000,000 the guaranty fee is 3.5% of guaranteed portion up to $1,000,000 PLUS 3.75% of the guaranteed portion over $1,000,000

For example, the guaranty fee on a $100,000 loan with an 85% guaranty would be 2% of $85,000 or $1,700.

The guaranty fee on a $2,000,000 loan with a 75% guaranty ($1.5 million guaranteed portion) would be 3.5% of $1,000,000 ($35,000) PLUS 3.75% of $500,000 ($18,750), which totals $53,750.

The Recovery Act temporarily waived these guaranty fees, but that expired on May 31, 2010. There is pending legislation to possible extend the waiver of these guaranty fees through the end of the year.

SBA 7(a) Weekly Lending Update

$12,118,754,000 in SBA 7(a) loans have funded through the week ending September 3rd. That is an increase of $191,507,000 from the prior week.

Another $181,876,400 in SBA 7(a) loans are in the Recovery Act loan queue awaiting possible guaranty fee relief. With 445 loans in the queue, that is an average loan size of $408,000. The guaranty fee would be $9,180.

Funding for guaranty fee waivers is the subject of legislation scheduled for a Senate vote on Spetember 14th.

The SBA and banks

The FDIC released the Q2 Quarterly Banking Profile last week.

The number of FDIC-insured institutions reporting financial results fell by 104 in the second quarter, from 7,934 to 7,830. This is the first time in almost ten years that the number of reporting institutions has fallen by more than 100 in a single quarter (the number declined by 113 in third quarter 2000).

While there may be fewer and fewer lenders out there, more and more of the remaining ones are SBA 7(a) lenders.

Since the passage of the Recovery Act, more than 1,200 lenders who had not made loans since October 2008 returned to SBA lending. In fact, of those lenders more than half had not made SBA loans since 2007.

The SBA hopes to increase the number of active SBA lending partners for the 7(a) loan program to 3,000 by September 30, 2011.

SBA Urges Public to Plan for Disasters During National Preparedness Month

It is National Preparedness Month and the Boy Scouts motto is "Be Prepared."

In conjunction with the five-year anniversary of the devastating Gulf Coast storms of 2005, the U.S. Small Businesses Administration is encouraging business owners, homeowners and others to create their own disaster preparedness plan during National Preparedness Month in September.

To prepare for disasters, SBA offers the following tips:
•Develop a solid emergency response plan.
• Make sure you have adequate insurance coverage.
• Copy important records.
• Create a "Disaster Survival Kit."


When disaster strikes, the SBA makes low-interest loans to homeowners, renters and non-farm businesses of all sizes.


To learn more about the SBA’s disaster assistance program, visit the website at www.sba.gov/disasterassistance.

For small businesses, the best way to be prepared is to ensure your company has adequate permanent working capital. A SBA 7(a) loan can be used for working capital purposes.