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Second Stimulus Brings Great Opportunity with SBA 504 and 7(a)

Michael J. Prost

February 09, 2021

PPP loans have all but consumed a majority of the loan activity and conversations over the past six months. In the most recent stimulus bill passed in December, there were substantial changes to the SBA 7(a) and SBA 504 that present an excellent opportunity for SBA loans. Essentially, the SBA is providing funds to complete a SBA loan.

These changes are most valuable to the following groups:

  • Partner buy-outs;
  • Business acquisitions;
  • Adding additional locations;
  • Purchasing a building;
  • Expanding a business;
  • Refinancing a variable rate or higher fixed rate SBA 7(a) into a low, fixed rate, SBA 504 loan (within a 90% loan-to-value on their real estate);
  • Pulling additional cash out of an existing SBA 504 loan; and/or
  • Refinancing the first portion of an existing SBA 504 to lower the rate.

These changes apply only to loans approved prior to September 30, 2021. Changes include:

SBA 7(a):

  • The SBA is currently waiving their upfront fees (saves between 3% and 3.75%).
  • The SBA is not currently charging the bank 0.55% ongoing.
  • The SBA is offering a 90% guaranty (this increases the chances of approval).
  • The amount of the SBA express has increased to $1,000,000.
  • The SBA will make the first six months payments on the loan capped at $9,000 per payment.

SBA 504 (For Commercial Real Estate and Industrial Equipment):

  • The SBA is waiving the 1.5% fee on the SBA portion of the loan.
  • The SBA is waiving 0.50% they charge the bank on the front end.
  • The SBA 504 rates are extremely low (less than 2.5% for both the 20-year and 25-year terms.
  • They are temporarily allowing SBA 504 loans to refinance SBA 7(a) loans that were used to purchase Real Estate as part of the transaction. (Note, this has never been allowed in the past).
  • They are allowing those with existing SBA 504 loans to take out additional cash from their buildings up to a 90% loan-to-value (they do not typically allow this).
  • The SBA will make the first six months payments on the loan capped at $9,000 per payment (for loans funded prior to 09/30/2021 this must start soon).

It is important to note that both programs require the current operating company provide sufficient cash flow to support the proposed debt, which may exclude those still struggling from COVID.

We are here to help. If you have any questions, or want to explore how these changes might support you and your organization, please contact our team.

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