Small Business Loan News - Stimulus Bill - Can We Now get loan with a SBA Secondary Market?

The word is that the design of new stimulus (American Recovery and Reinvestment Act of 2009) has a special provision creating a secondary market of the Federal Government for SBA guaranteed loans. If you're a small business owner, this will loosen the purse strings and allow some of my sponsors' money to trickle down from the big cats on Wall Street and in your pockets? Yes, it's a good start, but keep the infection, because it is not as wildly exciting as you might think. In fact, some have openly criticized the new law. This article continues (20 in all) on the subject: Help. Is there anyone out there lending to small business?

Let us first start watching a program that is already in existence and is sold on the secondary market. There is a loan program out there and SBA lenders are actually making loans currently: the Community Loan Express Program. Thus unsecured small business loans between $ 5,000 and $ 50,000 with very little documentation, usually responds in two days, interest rates currently at 7.75%, funding and two weeks, and funds linked directly to your account business. There are still lenders participating in this program, even if Congress failed to make the program permanent and still has a 10% cap on the number of loans. Enter the bill Obama stimulus. We see this program and how it affects small business lending as a whole.

Some titles naive to claim $ 3 billion in the stimulus bill will be placed on the secondary market and purple, the banks will be more funding. Not so fast. This article explains that the money is pumped into an elite program that SBA will not affect the average small business owner.

Before giving a clear answer, we try to define what we mean. Many of us have heard of SBA loans. Except for emergency loans and the Microloan Program (for disadvantaged communities), the Federal Government through the U.S. Small Business Administration (SBA) does not actually borrow the money. Instead, licenses private lenders, such as the community bank on the block, to make loans and if there is a default, the federal government guarantees to come to the rescue and redemption for a certain percentage. So if you have a loan of $ 100,000 (in this economy? OK, hypothetically) that has a guarantee of 75% and there is a default, after passing through some stages, the creditor may receive a refund for up to $ 75,000 . And remember that there are literally thousands of lenders out there that make SBA loans for the simple reason that they feel safe and warm with a guarantee.

Now here is how the secondary market. In the good old days no toxic reverse mortgages, the banks held on their loans and simply kept in-house interest. But those days are long gone and the banks now to pool loans and sell them to investors on the secondary market that will pay a premium for the enjoyment of future expected interest loan. Were packaged almost like mutual funds. Unfortunately, the secondary market is a dry stream bed. I'm not handing out excuses for our banks, but this is one reason for not posting.

But ask the average person on the street and a grin creeps on their face when they hear the name SBA loan:. "Yes, in whose life I much prefer to get a loan, while I'm still young" pop into their heads Visions of pounds of paperwork, endless regulations, delays and untold layers of government red tape. But not so fast. The SBA also has excellent smaller loans that are truly "lean and mean".

What does the new stimulus bill do? He got a "A" for the idea, but hardly the way with follow-through did not go nearly far enough. Under Article 503 of the new bill that established a secondary market for loans just 504 (to eliminate any confusion, the term "504" refers to a section under the old law Small business investment, and not the current account of stimulus), which applies primarily to large enterprises that require commercial loans for the purchase of land and buildings. A private lender works in conjunction with a Certified Development Company of the government. Typically, the private lender makes a loan for 50% of the cost with a first mortgage (not guaranteed by SBA) with 40% loan from CDC in a second position (100% guarantee SBA). The remaining 10% would be in cash by the borrower.

So if you are a trucking company that has worked hard and increased the number of trucks from 5, 10, 15, and 100 years later, you must purchase a new port and storage (less than truckload jobs) . Cost - $ 4 million. You can get a bank loan under the 504 program as a first mortgage commercial position. The SBA now has the power to establish a SBA Secondary Market Guarantee Authority and 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% share at risk. The SBA does not loan guarantees more than $ 3 billion of such loans in the pool.

If you want to read the fine print, here is the exact text:

SEC. 503. Establishment of SBA SECONDARY MARKET OF WARRANTY. (A)-PURPOSE The purpose of this section is to provide the administrator the power to establish the SBA Secondary Market Guarantor Authority within the SBA to provide a federal guarantee for pools of first lien 504 loans that must be sold to third party investors.
(B)-DEFINITIONS For the purposes of this section:
(1) The term `Administrator 'means the Administrator of the Small Business Administration.
(2) The term `first lien position 504 loan 'means the first mortgage position, non-guaranteed federal loans provided by private lenders under Title V of the law on small business investment.

And yet:

(2) WARRANTY PROCESS-
(A) The Administrator shall, as a rule, a process in which private sector entities may apply to the Administration a Federal guarantee on pools of first lien position 504 loans that must be sold to outside investors.

But there is a catch. In another article I said the SBA is doing away with the debtor to pay a guarantee fee of the loan, which can be thousands of dollars for larger loans. Unfortunately, the secondary market of 504 loans, the SBA will charge a fee. Currently, these loans have no SBA guarantee:

(3)-LIABILITY '
(A) The Administrator shall, as a rule, a process in which private sector entities may apply to the SBA a federal guarantee on pools of first lien position 504 loans that must be sold to outside investors.
(B) The rule under this section provides a process for the Administrator to consider and take decisions regarding the opportunity to extend a Federal guarantee referred to in clause (i). This rule also provides that:
(Ii) the administrator must pay taxes, initial or annual basis, to a certain percentage of the loan amount that is at such a rate that the cost of the program under the Federal Credit Reform Act of 1990 (Title V of the Congressional Budget and Impoundment Control Act of 1974, 2 USC 661) is zero.

This program for the secondary market established by the SBA, will last for two years under section 503 (f). Since this is emergency legislation, the SBA is to issue regulations within 15 days of signing the bill (503 (i)); surprisingly fast for government purposes.

What about the secondary market on other loans? The medium is typical of all the great days of SBA loan is under the flagship 7 (a) program. For example, using the same trucking company if they needed money to buy more trucks, hire employees, or for the overall cash flow, he sought to 7 (a) loan. The stimulus bill does not establish a new secondary market for 7 (a) loans. But they allow direct government loans (not made by private banks) to the broker-dealer secondary market to purchase 7 (a) loans. So if you are in business to buy aggregates 7 (a) loans and need a loan to do so, taxpayers' money will be used for this purpose. The idea is to stimulate the secondary market again and the banks make more loans.

But what about the small guy? Here the news is very disappointing. Studies show the average small business loan is $ 10,000. None of the stimulus programs helps the secondary market for smaller loans and lenders are so few loan.

But do not give up hope. There are still lenders out there, including those paying their own money, they're still making loans in the range of $ 5,000 to $ 50,000 guaranteed at affordable rates, in the neighborhood of 7.75%. You just have to know where to look....