The word is that the new stimulus bill (American Recovery and Reinvestment Act of 2009) has a special provision creating a secondary market for SBA loans federally guaranteed. If you own a small business, this will loosen any laces lender bag and leave some money to trickle down the big cats on Wall Street and in the pockets? Yes, it's a good start, but keep your infection, because it is not as tremendously exciting as you might think. In fact, some have openly criticized the new bill. We
Start watching a program already in existence and in which SBA lenders are actually making loans: The Community Express Loan Program. This gives unsecured small business between $ 5,000 and $ 50,000 with very little paperwork, answers typically in two days, interest rates presently at 7.75%, funding and two weeks, and money cable directly to your business account. Enter the Obama stimulus bill. Let's see how it affects this program and small business lending as a whole.
Some owners claim indiscriminately $ 3 billion in the stimulus bill is being pumped into the secondary market and the viola, the banks will make more loans. Not so fast. As this article explains, that money is being pumped into a program of the elite SBA will not affect the average small business owner.
Before giving a clear answer, let's define what we mean. Most of us have heard of SBA loans. With the exception of disaster loans and microcredit program (for marginalized communities), the Federal Government through the Small Business Administration (SBA) does not actually lend the money. In contrast, private lenders such as community bank licenses on your block to make loans and if there is a default guarantee from the federal government comes to the rescue and reimburse a certain percentage. Therefore, if you have a loan of $ 100,000 (in this economy? OK, hypothetically) that is guaranteed for 75% and there is a default, after going through certain stages, the lender may receive a refund of up to $ 75,000 . And remember that there are literally thousands of lenders out there that make SBA loans simply because they feel warm and fuzzy with warranty.
Now here's how the secondary market operates. In the good old days absent toxic reverse mortgages, banks kept loans and just keep the interest in the company. But those days are long gone and now banks pooling their loans and sell them to investors in the secondary market pays a premium for the enjoyment of future expected interest loan. They were packaged almost as investment funds. Unfortunately, the secondary market is now a dry creek. I'm not handing excuses for our banks, but this is one of the reasons they are not lending.
But ask the average person on the street and a grin creeping over her face when they hear the name of the SBA loan: "Yes, in whose life I'd rather get a loan while I'm still young." Visions head pop pounds of paperwork, endless delays incalculable regulations and layers of government bureaucracy. But not so fast. The SBA also has excellent smaller loans that are truly "lean and mean".
So what's new stimulus bill do? He got an "A" for the idea, but just about the follow-through is not going far enough. Under Section 503 of the new law has created a secondary market for loans only 504 (to eliminate any confusion, the term "504" refers to a section under the old Law on Investment in small business, and not the law current stimulus) that applies mainly to larger companies seeking commercial loans for the purchase of land and buildings. A private lender works with a government Certified Development Company. Normally, the private lender makes a loan for 50% of the cost under a first mortgage (not guaranteed by the SBA) with 40% loan from the CDC in a second position (100% SBA guarantee). The other 10% will be in cash by the borrower.
Therefore, if you are a trucking company that has worked hard and increased the number of trucks of 5, 10, 15, and 100 years later, you need to buy a new yard and warehouse ( less job full load). Cost – $ 4 million. You get a bank loan under the 504 Program as a commercial mortgage first position. The SBA now has the authority to establish a guarantee SBA Secondary Market Authority and provide guarantees for pools of 504 loans to be sold to third party investors in the secondary market. The lender must retain at least a 5% stake at risk. The SBA guarantees loans no more than $ 3 billion of this type of pooled mortgages.
If you like reading fine print, here is the exact text:
SEC. 503. Establishment of SBA WARRANTY SECONDARY MARKET AUTHORITY. (A) purpose-The purpose of this section is to provide the administrator with the authority to establish the SBA Secondary Market Guarantee Authority within the SBA to provide a federal guarantee for pools 504 first-lien loans that are to be sold to third parties investors. (B) Definitions For purposes of this section: (1) The term "Administrator" means the Administrator of the Small Business Administration. (2) The term 'first lien position loan 504' means loans first position mortgage, without federal guarantee made by private sector lenders made under Title V of the Act Small Business Investment.
(2) processing WARRANTY (A) The Administrator shall, as a rule, a process that can be applied to private sector entities Administration for a federal guarantee on pools of loans 504 first lien positions which they are being sold to third party investors.
But there's a catch. In another article I stated the SBA is destroying the borrower to pay a loan guarantee fee, which can be thousands of dollars for larger loans. Unfortunately, the secondary market for 504 loans, SBA will charge a fee. Currently, these loans do not have a guarantee from the SBA:
(3) RESPONSIBILITIES (A) The Administrator shall, as a rule, a process that can be applied to the private sector to the federal guarantee on SBA puddles first 504 lien position loans that are to be sold to third party investors. (B) The rule under this section should provide a procedure for the Administrator to consider and take decisions regarding the possibility of extending a federal guarantee clause (i) above. Such a rule would also be provided: (ii) The Administrator shall collect fees, initials or a year, a certain percentage of the loan amount is at such a rate that the cost of the program in accordance with the Federal Credit Reform Act of 1990 (Title V of the 1974 Act of Congress Budget and Control Reservoir, 2 USC 661) will be zero. This secondary market
Program established by the SBA will only last two years under section 503 (f). Because this is emergency legislation, the SBA is to issue regulations within 15 days of signing the bill (503 (i)); incredibly fast for government purposes.
What about the secondary market for other loans? The average typical large loan from the SBA, day belongs to battle horse program 7 (a). For example, the use of the same trucking company, if they needed money to buy more trucks, hire employees, or cash flow generally seek a (a) loan 7. The stimulus bill does not set a new aftermarket 7 (a) loans. But it allows direct government loans (other than by private banks) to brokers in the secondary market to buy 7 (a) loans. So if you are in the business of buying pooled 7 (a) loans and need a loan to do so, taxpayers funds will be used for this purpose. The idea is to stimulate the secondary market for new banks to make more loans.
But what about the little guy? Here the news is very disappointing. Studies show that the average small business loan is $ 10,000. None of the stimulus programs helps the secondary market for smaller loans and so few lenders are providing.
But do not give up hope. There are still lenders out there, including loans of their own money, they are still making loans in the range of $ 5,000 to $ 50,000 unsecured at good prices in the neighborhood of 7.75%. You just have to know where to look.