In its continuing effort to help businesses struggling from the pandemic, the Small Business Administration (SBA) has stated that borrower fees on $350,000 or smaller loans will remain at $0 for the 2022 fiscal year — Oct. 1, 2021, to Sept. 30, 2022. This fee reduction represents continued substantial savings for borrowers. For example, if you were to get a $350,000 loan, you would save $7,875 in guarantee fees.
For those who don’t already know, $350,000 is a crucial threshold in the world of SBA lending. The SBA is not required to be in the first lien position on all of your assets if your loan is under $350,000. In addition, if you own a personal home, the SBA is not required to take a lien on it for loans under $350,000. This can be quite appealing for business owners who naturally shudder at the word “lien.” While liens, personal guarantees and collateral are all integral parts of the lending environment, a $350,000 loan may be a good way of “dipping your toes in” so to speak. Now, there is even the additional benefit of no fees on these loans. However, you still will probably have to pay for some other required additions like appraisals and credit checks. These are necessary parts of the due diligence process.
SBA loans of $350,000 or less also are typically processed a lot faster than larger SBA loans based on these simpler requirements — SBA 7(a) loans can go up to $5 million, SBA 504 loans can go up to $12.8 million or more, if green. Therefore, borrowers always should consider the SBA first before, or hopefully instead of, checking out more expensive private lending options, especially when it comes to loans $350,000 or less. Think you may need more than that? You can always get another one down the line if you need to. The SBA guaranteed loans are for for-profit businesses and can be used for working capital, acquisitions, debt refinancing, partner buy-outs, equipment and business occupied real estate.
Guarantee percentages are still set to their pre-pandemic rates — 75 percent for loans $150,000 and above, 85 percent for loans $150,000 and below. While guarantee percentages are not something a borrower typically has to consider, they do affect whether or not a bank or non-bank lender will lend you the money. The guarantee percentage is the amount of the loan that is guaranteed, by the SBA, to the bank if you were to default. Therefore, the higher the guarantee, the safer lenders feel making riskier loans. Despite what you may have seen during the pandemic, the SBA is not your lender. They only lend in disaster situations, such as the Economic Injury Disaster Loan program (EIDL), that has unfortunately become part of our everyday language.
While these fee reductions are good news, it shows that we are still out of reach of the long-awaited end to this pandemic and its repercussions. EIDL funds continue to be pumped out. Regulations and recommendations change nearly daily on personal protective equipment, vaccine requirements and in-person versus remote meetings. This is all without even considering the differences in requirements between states and even their cities. As always, I stress preparedness, not only for the worst, but also for opportunities, as we look to the future.
Ami Kassar is the founder and CEO of MultiFunding, a Philadelphia-based consulting firm that specializes in helping business owners across the U.S. develop creative, cost-saving alternatives for their business debt needs and structure. He can be reached at email@example.com or multifunding.com.