Enhancements to SBA Lending for Small Businesses

by | November 9, 2010

Our guest blogger this week is Lisa Forrest, VP of SBA Lending at Union Bank.  Lisa brings over 22 years of SBA Lending experience and shares recent enhancements to SBA lending programs for small businesses.


Exciting News for the SBA 504 Loan Program.  When President Obama signed into law the Small Business Jobs Bill (HR 5297) in late September, it included many enhancements benefitting small business onwers regarding their owner-user commercial real estate.   I’ll recap some of the highlights herein.  I’ll start with a refresher on the program parameters.

504 Program guidelines.  The CDC/504 loan program is a long-term financing tool for economic development within a community. The 504 Program provides small businesses requiring “brick and mortar” financing with long-term, fixed-rate financing to acquire major fixed assets for expansion or modernization. A Certified Development Company (CDC) is a private, nonprofit corporation set up to contribute to the economic development of its community. CDCs work with SBA and private sector lenders to provide financing to small businesses.  Typically, a 504 project includes A loan secured from a private sector lender with a senior lien covering up to 50 percent of the project cost; A loan secured from a CDC (backed by a 100 percent SBA-guaranteed debenture with a junior lien covering up to 40 percent of the total cost;  and A contribution from the borrower of at least 10 percent equity.  The program is know for its low downpayment requirements…as low as 10% AND the tremendous long-term, fiixed rate structure.  Search www.SBA.gov for further information.

HR 5297 504 Loan Program Enhancements:

1.  Maximum Loan Amounts—the maximum size for the 2nd Mtg CDC/SBA 504 loan has been permanently increased to $5Million for the general program.  For small manufacturers and energy loans the 2nd Mtg loan size has increased to $5.5Million.  That means when combined with the Lender 1st Mtg and the borrower downpayment, the SBA 504 loan program can now finance projects in the $12Million PLUS range.

2.  Alternative Business Size Standard—the SBA will now consider small businesses eligible for the 504 program to include those with net worths up to $15Million and 3yr net incomes of $5Million.  This is great news as it will allow much larger and financially stable businesses to be eligible for SBA financing.

3.  Debt Refinancing—It is welcome news that the SBA will now allow refinaning under the 504 program for a temporary 2yr period.  The details have not yet been released as to specific refinance guidelines but these are reported to be forthcoming.  This is one of the most exciting enhancements to the program with the potential to give small business owners the ability to take advantage of historically low, long-term fixed interest rates.

4.  Lowest interest rates in the history of the 504 Program—SBA 2nd Mtg 20 Year fixed rate 4.5%.