After a challenging year for small businesses, it has never been a better time to start thinking about growth. The Small Business Administration has recently launched three incentives for its 7(a) loan program to stimulate business growth:
- Waived Guarantee Fees
- Increased Loan Guarantees
- Payment Relief
All these incentives make right now a particularly advantageous time for small business owners to transition from survival mode into thinking about the future of their business. The 7(a) loan program can be used for long- and short-term capital, refinancing business debt, and purchasing real estate and equipment. Small businesses interested in these incentives must take advantage of them before they expire on September 30, 2021.
Waived Guarantee Fee
The guarantee fee waiver is the most impactful of the 7(a) loan program’s new incentives. Guarantee fees are typically 2-3.75% of the loan, which can amount to a large sum of money for borrowers. As a loan approaches the SBA’s maximum loan amount of $5 million, borrowers can find themselves paying a fee upwards of $100,000. With the fee waiver, this expense is completely eliminated for 7(a) loans of all sizes.
“The fee waiver is intended to stimulate more business, to spur more economic activity, and create more jobs.”
“The fee waiver is intended to stimulate more business, to spur more economic activity, and create more jobs,” said Charlie Bauman, VP Credit. “A lot of businesses are struggling, so if they can recapitalize their business or if they have existing debt that they want to wrap into one big 7(a) loan, they’re able to do that.”
In 2020, small businesses created 1.6 million new jobs, a decrease from the 1.9 million jobs created in 2019 by small businesses. The intent of the fee waiver is to create and maintain jobs across small businesses. Read more here.
“If a business is looking to grow it’s a great way to get long-term financing,” Charlie said, “or if they’re looking to recapitalize their existing structure to extend out the maturity or the timeframe of their loan payments it can be very beneficial in terms of cash flow savings.”
This fee waiver is also a great opportunity for people wanting to take the first step toward starting their own business.
Increased Loan Guarantees
The SBA has raised the guarantee on 7(a) loans from 75% to 90%, giving banks and other lending institutions an increased incentive to lend.
For example, if you have a $1 million loan the SBA would guarantee $900,000 of it. This means the bank’s exposure is only $100,000, minimizing the bank’s risk and maximizing the borrower’s opportunity to receive financing.
“It’s more enticing to banks, which makes banks able to be a little bit more aggressive knowing they have a 90% guarantee on an SBA loan,” Charlie said. “It makes a bank’s risk of loss a lot lower.”
Borrowers with an SBA-approved loan are also eligible to receive three months of payment relief up to $9,000 a month.
- 7(a) loans approved on or before September 27, 2020, and fully disbursed on or after September 28, 2020, will receive three months of Section 1112 loan payments.
- 7(a) loans approved prior to March 27, 2020, are eligible to receive two months of Section 1112 payments (maximum of $9,000/month).
- For new 7(a) loans approved from February 1, 2021, to September 30, 2021, the SBA will make Section 1112 payments for 3 months, subject to the availability of funds.
“Our lenders are great at giving advice, not just for what’s your business doing today, but for where you are heading and your long-term goals.”
“The big thing is having a good lender, somebody that’s willing to take the extra steps to look at your financials and your projections,” Charlie said. “Our lenders are great at giving advice, not just for what’s your business doing today, but for where you are heading and making sure it aligns your long-term goals.”
Now is a great time to think about growth and Choice can help with that. If you are interested in reviewing where you’re at with your business, we will work with you to come up with a financing plan that meets your needs.
For more information or to find a loan expert near you, click here.