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New SBA Loan Boom Expected in Q4

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in The Business of Business Finance

Small Business Jobs and Credit Act was passed by Congress yesterday and will be signed into law as early as today. This new legislation combined with record low interest rates has small business experts anticipating a huge increase in Q4 lending.

The Passage of the Small Business Jobs and Credit Act means there will be an immediate boost in SBA lending for both the 7(a) and 504 programs.  First, the new legislation expands the definition of a small business, enabling larger businesses to access the SBA loan programs (traditionally sliding scales on an industry basis).  It also makes both temporary and permanent changes to the programs available to eligible businesses, including renewing successful temporary incentives that were part of the original stimulus legislation.   Here are the highlights:


SBA 7(a) Guaranteed Loan Program 

This program provides a federal government guaranty to a lender and is used primarily for working capital, equipment and inventory purchases, and leasehold improvements.

INCREASE IN GUARANTEE AMOUNT – the 75% SBA guarantee is again increased to 90% until December 31, 2010 or funds run out.

FEE WAIVERS – The 2.25% fee to Borrowers is again waived until December 31, 2010 or funds run out.

PERMANENT INCREASE IN LOAN AMOUNT –The maximum loan amount is permanently increased from $2,000,000 to $5,000,000.

SBA 504 Program 

This program entails a 50% loan from the primary (private sector) lender, with a 40% second from the SBA, and is used primarily for owner-occupied real estate (at least 51% occupied) and major fixed assets.

FEE WAIVERS – The 1.5% fee to Borrowers and the 0.5% fee to lenders (typically passed through to Borrowers) is waived until December 31, 2010 or funds run out.


  • The standard maximum amount of the 40% second loan is permanently increased from $2,000,000 to $5,000,000, making the entire loan package maximum $10,800,000.00 on a property appraised at  $12,500,000.
  • For small manufacturers and certain energy efficient projects, the maximum amount of the 40% second loan is permanently increased to $5,500,000. 


Traditionally, this loan program was only available for acquisitions and expansions.   For a two year period, the 504 program will be able to refinance qualified existing debt, with the following conditions:

  • Debt must have been incurred at least two years prior to the application to refinance
  • Debt was used to acquire 504 eligible real estate or fixed assets
  • The loan must have been current for the last 12 months
  • LTV may be as high as 125% providing additional collateral is posted for a total LTV of 90%
  • The borrower must have at least a 2 year business history
  • No federally guaranteed loans are eligible for refinancing

These new rules will allow many businesses who were not eligible for these loans, especially considering the refinancing option now open to the 504 program.  The expansion of the programs may also cause lending institutions, who have avoided SBA lending programs, to enter the space.  Hopefully this will provided additional capital to small business owners needing working capital and business loans.

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