The SBA and PROfound

Profound

pro·​found

difficult to fathom or understand

very great or significant

 

from Latin profundus, from pro- before + fundus bottom

 

_____________________________________________

TIP OF THE WEEK

 

The most recent changes to SBA’s SOP are profound.

 

SBA SOP 50-10-8.1 will be effective October 1^st 2026.

 

Proficiency with SBA lending requires knowing SOP 50-10-8.

 

It has a prolix 147,517 words over 416 pages.    That’s an improvement over  the prior SOP 50-10-8 which had 163,291 words and 467 pages.

 

The biggest changes are focused on business acquisitions with increased debt service coverage requirements and how to amortized acquisitions that include both real estate and a business.

 

The guidance manual for SSBCI guarantees has only 6,742 words.    Only 22 pages.

 

 

_________________________________________

 

Indices:

PRIME RATE= 6.75%

________________________________________

SBA 504 Loan Debenture Rate for August

 

For 20 year debentures, the debenture rate is only 5.08% but note rate is 5.15332% and the effective yield is 6.026%.

For 25 year debentures, the debenture rate is only 5.14% but note rate is 5.19340% and the effective yield is 6.033%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

The prodigal son, the bond vigilantes, return.

 

Rates on the longer end of the yield curve continue to climb.

 

At last week’s $25 billion auction of 30-year Treasury bonds the high yield was awarded at 5.216 percent versus 5.058 percent a month ago.

 

This rate is a full ½ percent higher than it was at the beginning of the year.

 

This $25 billion offering was an increase compared to $22 billion the month prior.

 

The increased supply is causing prices to down causing the yields to go up. 

 

Here is what the 30 year Treasury bond has been doing and this week’s interesting little table of data:

 

2001- 5.49

2002- 5.43

2003- ND

2004- ND

2005- ND

2006- 4.91

2007- 4.84

2008- 4.18

2009- 3.89

2010- 4.61

2011- 2.89

2012- 2.77

2013- 3.25

2014- 3.97

2015- 2.91

2016- 2.32

2017- 3.16

2018- 3.13

2019- 2.594

2020- 1.216

2021- 1.88

2022- 2.375

2023- 3.741

2024- 4.015

2025- 4.773

 

Wait a minute, why no numbers for 2003, 2004, and 2005?

 

One month after the 9/11 attacks, the Treasury 30 year bond is discontinued. When the Treasury mothballed the 30-year bond in 2001, experts speculated it was trying to drive down long-term interest rates, which had remained stubbornly high while the Federal Reserve was slashing short-term interest rates to revive the economy. When the Treasury discontinued the 30-year bond in 2001, its yield fell 35 basis points in one day. Why? A shrinking supply of the 30-year Treasury bond caused increased demand to drive rates down.

 

So what does all this mean?

 

I don’t know.  

 

The long end of the yield curve prognosticates inflationary expectations and ultimately market rate expectations.

 

 

__________________________________________

 

OFF BASE

 

We have now past the metrological midpoint of summer with only 38 days left until the first day of autumn.

 

 

President Obama signs H.R. 2499 into law using autopen

President Obama signed H.R. 2499  into law this morning effective immediately. The Office of Management & Budget (OMB) has apportioned the additional authority to SBA and the 7(a) program should be back up and running very shortly. 

Because he is out of the country, the President had to authorize the use of the autopen -- for only the sixth time during his presidency. The autopen is used only when legislation must be urgently signed into law. The reopening of the SBA 7(a) loan program is now among an elite few pieces of legislation that qualified for autopenning, including the extension of The Patriot Act provisions; to fund the federal government under a Continuing Resolution; the American Taxpayer Relief Act to avoid the fiscal cliff, and two others. 

SBA 7(a) Loan turn-around time

I just submitted a Small Loan Advantage 7(a) request to the Loan Guaranty Processing Center and SBA approved it in less than 1 week!

No Fees For SBA 7(a) Loans!

As set forth in SBA Information Notice 5000-1288, all 7(a) loans approved for $150,000 or less in FY2014 will have a zero fee for both the yearly fee (also known as the ongoing servicing fee) and the upfront guaranty fee.

SBA just released 5000-1294 clarifying SBA 7(a) loan fees.

SBA revised rules for eligible passive companies and operating companies as co-borrowers

On April 2, 2012, the Small Business Administration published a "Direct Final Rule" in the Federal Register, (Vol. 77, No. 63, April 2, 2012) which provides much-anticipated clarification to the EPC rule set forth at 13 CFR 120.111.

This makes the EPC rule consistent with industry practice as it existed prior to the issuance of SOP 50 10 5(D) in the Fall of 2011.

The clarification provides Lenders with the ability to structure mixed-purpose loans for their borrowers without imposing undue hardship by either requiring the loan to be split into two loans or requiring that the loan be restructured.

A new and improved SOP 50-10-5 E will be out soon!

Banks and borrowers missing out on SBA loans

Banks and borrowers are missing out on SBA loans.

What's going on here?

Fewer SBA 7(a) loans are being approved this year than they were during the previous two years.


Through December 16th , the SBA approved $2.8 billion in government-guaranteed loans though its flagship 7(a) program this fiscal year, which began October 1st. During the same period a year ago, the SBA had approved $6 billion in 7(a) loans. Two years ago, the SBA had approved $3.1 billion.

The spike in volume was driven by stimulus act incentives such as the higher guarantee and guarantee fee waivers which has expired.

Even without the enhanced guarantee and guarantee fee waiver, SBA 7(a) loans still offer lenders a very profitable lending platform and borrowers long term, fully amortizing loans that can be used for real estate purchase, real estate debt refinance, business debt refinance, business acquisition, equipment purchase and working capital.

An early Christmas for SBA loans

Christmas came early for SBA loans as the $1 trillion omnibus spending bill was passed. 

Not only did this avert a government shutdown it also means both the 7(a) and 504 programs should receive sufficient funding for the balance of the fiscal year.

This omnibus-spending bill appropriates $918.7 million to the SBA for fiscal year 2012


This gives the 7(a) program $17.5 billion in commitments for this fiscal year.

SBA Announces Record Loan Approval Volume in FY 2011

From the SBA:
During the fiscal year, which ended Sept. 30, SBA loan approvals supported $30.5 billion (61,689 loans) in lending to small businesses and start-ups through its two largest loan programs, compared to $22.6 billion (60,771 loans) in FY 2010 and $17.9 billion (50,830 loans) in FY2009.


The FY2011 total is the highest volume fiscal year in the agency’s history, surpassing the $28.5 billion mark established in FY2007. The first quarter of the year, at over $12 billion supported, was the most active single quarter ever for SBA-backed loans, with more than four times the dollar volume of the same quarter in 2009 – the first three months of the recession – and more than double the volume of any quarter over the past four years.

The totals for FY2011 include 53,706 loans $19.63 billion under the agency’s largest loan program, the 7(a) General Business Loan program, and 7,983 loans for a total approval of $4.84 billion, supporting $10.34 billion in small business lending under the 504 Certified Development Company loan program. The “supported” amount for 504 loans includes the SBA share and third party loans that are made by commercial lenders as part of the funding package.


Those numbers compare with 7(a) totals for FY 2010 of 52,938 loans for $12.46 billion, and 504 program totals of 7,833 loans for a total supported dollar amount of $9.97 billion.

Deja Vu All Over Again

Senate Republicans have introduced a bill that could eliminate all federal programs to assist small businesses, as well as women-owned, veteran-owned and minority-owned firms. Senator Richard Burr (R-NC) introduced S. 1116, titled the "Department of Commerce and the Workforce Consolidation Act," which would combine the Small Business Administration (SBA) with the Department of Labor and the Department of Commerce, a move that could devastate U.S. job creation.

Republicans have attempted to abolish the SBA for nearly three decades. President Ronald Reagan tried to shut the agency down back when I first got started doing SBA loans.

Once people realize that the SBA 7(a) program not only drives job creation but is also a net revenue generator for the government, support for the program should keep it alive.  If you factor in the cost of the program, both its administration as well the actual guarantees, against the guarantee fees collected and net tax revenues generated, this program pays for itself.  Call it supply side spending.

504 debt refinance

SBA just released a further set of enhancements to the regulations governing the Temporary 504 Refinance Program. 
In short, the further enhancements allow:
- Submission of an application subject to an appraisal
- A clarification on the handling of multiple note refinancings

Anyone who owns their own building and has a balloon coming due should seriously consider a refinance with a 504 loan.

SBA Turn Around Time

For those of you who think you should only work with a PLP lender, you are mistaken.  We recently assisted a lender in submitting a deal to SBA through the Guaranty Loan Processing Center and obtained our approval in less than a week. 

For start to finish it was actually four days.

Another SBA success story

If you ever shop for sports or camping apparel, you inevitable will run across Columbia Sportswear. 

This company received a SBA loan for $15,000 back in 1970. 

Columbia Sportswear Company located in Portland, Oregon was rescued from near bankruptcy when Gert Boyle took over operations of Columbia, started by her parents, and turned it into a $1 billion company.

Columbia's story, along with others, is available online from SBA at:
http://www.sba.gov/AmericasBest

The SBA and the budget

While many federal agencies will take a haircut in the spending bill negotiated last weekend between Senate Democrats and House Republicans -- -- the Small Business Administration has emerged from the negotiations largely intact. The bill trims 0.2 percent from every nonmilitary discretionary account, including those that finance the S.B.A. But it also aims at specific programs with deeper cuts, and here the S.B.A. was effectively spared. . . . go here for the article in the New York Times...
http://boss.blogs.nytimes.com/2011/04/12/s-b-a-spared-in-2011-spending-deal/?partner=rss&emc=rss
 

Killing the goose that lays the golden egg

The Congressional Quarterly daily reports today (4/5) that "prospects of at least a temporary shutdown have surged today. Both the White House and Hill leaders are taking the situations seriously enough that they’re getting ready to sort-of lock up. This morning congressional offices (at least on the House side) were receiving a memo from the leadership telling chiefs of staff the difference between “essential” and “non-essential” employees and which House support offices could be closed. Last night the White House told top agency officials to begin making preparations for implementing a shutdown."

What that means to SBA lenders and borrowers is that no loan approvals will happen if and when the government shuts down.

 

504 debt refinance

The Small Business Administration will allow more businesses to refinance their commercial real estate mortgages through its 504 loan program. The SBA initially restricted this new refinancing option to small businesses that faced balloon payments on their mortgages before Dec. 31, 2012. Beginning April 6, it will open the 504 refinancing option to businesses with balloon payments due after that date.

Getting Money Into the Hands of Small Business

From today's Wall Street Journal...
Getting Money Into the Hands of Small Businesses - WSJ.com

The recession's grip on small-business owners has loosened, but unemployment remains stubbornly high and access to credit is still tight.

SBA 7(a) loans however are going strong...

The SBA and the budget

Total credit subsidy appropriations are proposed to go from $83 million in FY 2010 to $215 million in FY 2012. Of course, using the governments’ calculator the $215 million proposed for FY 2012 will be a DECREASE from the actual FY 2011 appropriation when considering the $505 million in Jobs Act money. As a result, funding is increasing while at the same time decreasing. Don't you just love government speak?

Everybody loves small business and the SBA

It looks like everybody loves the Small Business Administration. At least Republican members of the House of Representatives do. House GOP members today released their plan to cut $2 1/2 trillion in spending over the next ten years.

Noticeably absent from their chopping block was the SBA, and rightly so. This is one of the only government programs that actually pays for itself. If you calculate the cost of the program and then consider the increased tax revenues generated by SBA borrowers, it generates net revenue back to the goverment.

Call it supply side spending.

For more details on the proposed budget cuts, go here- http://news.yahoo.com/s/usnews/20110120/ts_usnews/housegoplists25trillioninspendingcuts

SBA loans Jobs Act Money exhausted

SBA quietly reactivated the Loan Queue on December 28 for the loans that could not be funded. Borrowers and lenders now will have to decide whether to have their loans processed immediately -- with the standard upfront guarantee fee and lower guarantee percentages; or, to wait in the queue for possible funding with the Jobs Act benefits as previously approved Jobs Act loans are cancelled.

How the Ginch stole Christmas from SBA lenders and borrowers

By a 193-165 vote, the House passed the Continuing Resolution last night which included an extension of the SBA loan fee waivers that were set to expire on 12/31/10.

The Continuing Resolution stated that SBA fee waivers will now be in place through 3/4/11 or until the remaining funds are exhausted from the initial $505 million in the September Jobs Act.

SBA has now indicated that the remaining funds are so limited it is unlikely they will last past the initial 12/31/10 expiration date. In fact, the current backlog of loans at SBA may utilize all of the remaining funds.