New SBA Stimulus Update

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The new stimulus law allows the U.S. Treasury Department to lend money to brokers to buy up pools of Small Business Administration (SBA) 7(a) loans on the secondary market thus making money available to banks to make more loans. Further, the U.S. Treasury Department will spend up to $15 billion to buy those pooled loans itself. It will also use the money to buy up the bank portion of debt on SBA Certified Development Company (CDC) 504 loans. The changes are effective immediately and will continue through out 2009 or the depletion of the available funds, whichever is first. Other significant changes in these programs that could include enhance your company's ability to get financing:

SBA 7(a) loans and lines of credit: The SBA 7(a) program, used to purchase real estate, refinance existing owner-occupied conventional real estate, acquire a business that includes real estate, purchase equipment, working capital line of credit for qualified borrowers, now guarantees the participating lender a 90% loan-to-value from a historical 75% loan-to-value. The 90% guaranty greatly reduced the bank's loan exposure. SBA's guaranty fees, historically ranging from 2% to 3.75% and ranging in cost from $5,000 to $75,000, have been eliminated. The 7(a) portion of the loan has a maximum loan amount of $1.5 million dollars.

SBA 504 loans: The SBA 504 program is used to purchase real estate, acquire a business that includes real estate and purchase equipment for qualified borrowers. The third party participation fees have been eliminated and the CDC fees have been eliminated. The maximum SBA debenture is $1,500,000 when meeting the job creation criteria or a community development goal. Generally, a business must create or retain one job for every $65,000 provided by the SBA except for "Small Manufacturers" which have a $100,000 job creation or retention goal. The maximum SBA debenture is $2.0 million when meeting a public policy goal. The maximum debenture for "Small Manufacturers", however, is $4.0 million. A Small Manufacturer is defined as a small business concern that has its primary business classified in sector 31, 32, or 33 of the North American Industrial Classification System (NAICS) and all of its production facilities located in the United States.
In order to qualify for a $4 million 504 loan, the Small Manufacturer must: 1) meet the definition of a Small Manufacturer described above, and either create or retain at least 1 job per $100,000 guaranteed by the SBA Small Business Investment Act or improve the economy of the locality or achieve one or more public policy goals of the SBI Act.

SBA Express: SBA Express, similar to SBA 7(a) program, allows up to a $350,000 loan amount with a 36 hour turnaround time.

SBA Microloan Program: If you find yourself in a position of getting turned down for an SBA loan under $35,000, even with these new program incentives to the bank and borrower, there are non-profit organizations called SBA Microloan Intermediaries that participate in the SBA microloan program to help small businesses learn why they have been turned down and will work with the business to help them become credit worthy for a SBA loan. Under this program, SBA makes funds available to nonprofit community based lenders (intermediaries) which, in turn, make loans to eligible borrowers in amounts up to a maximum of $35,000. The Microloan Program provides this funding for loans to start-up, newly established, or growing small business concerns.

WECO Fund and Microenterprise Program: Working for Empowerment Through Community Organization (WECO), serving businesses in Cuyahoga county, is an SBA Microloan intermediary that works in partnership with a significant number of banks, credit unions, non-profit organizations, business support organizations, government agencies, educational institutions, and major corporations to provide training and technical assistance to help small businesses learn how they can improve their credit-worthiness if they have been turned down for an SBA loan. Business education courses are available to entrepreneurs looking to start or develop a business and potentially access a microloan through training and planning assistance in helping the business to re-apply for microloan financing including providing loan packaging workshops and coaching on presentation of a business plan to the WECO Loan Committee to secure loans from$500 - $35,000.

The Microenterprise Program also provides referrals to more extensive small business skill development, training programs offered by other community organizations and business plan development assistance through classroom training and individual coaching.

For more information on SBA program options, contact your lender to discuss your options with their SBA specialized lending group. To learn more about the WECO Microenterprise Program, call (216) 458-0250.