SBA Creates Secondary Market Guaranty Program for 504 First Mortgage Loan Pools

Regulations published by the U.S. Small Business Administration will create a secondary market guarantee program to provide greater liquidity for lenders and expand access to capital for small businesses. Funded through the American Recovery and Reinvestment Act, the new program would encourage sales into the secondary market of the “first mortgage” portion of small business financing made possible through the SBA’s 504 Certified Development Company (CDC) program. As a result of the economic recession and the disruption in the credit markets, there has been a significant decline in secondary market activity for 504 first mortgage loans.

“This new program will stimulate activity in the secondary market, ensuring lenders have a place to sell first mortgage loans on their books and in turn have liquidity to make more loans to small businesses,” SBA Administrator Karen Mills said. “This is another tool in our Recovery toolbox that will expand access to the capital small businesses need to drive economic growth and create jobs.”

The 504 CDC program provides credit for the purchase of real estate and other fixed assets tied to a business’ expansion. Financing under the program includes three components: 1) a first mortgage or lien, which is made by a private commercial lender for 50 percent of the total project and does not come with a government guarantee, 2) a second mortgage or lien, which is made by a CDC for 40 percent of the total project and guaranteed fully by the SBA, and 3) borrower equity for the remaining 10 percent of the total project.

Under the new program, portions of eligible 504 first mortgages pooled by originators or broker dealers could be sold with an SBA guarantee to third-party investors in the secondary market. Lenders will retain at least 15 percent of each individual loan, pool originators will assume 5 percent of the risk, and the SBA will guarantee the remaining 80 percent. To be eligible to be included in a pool, the first mortgage must be associated with a 504 loan disbursed on or after Feb. 17, 2009. The program will be in place until Feb. 16, 2011, or until $3 billion in new pools are created, whichever occurs first.

SBA will begin accepting applications to become a pool originator from banks and broker dealers immediately, and expects to be operational for the settlement of pools in about 60 days.

For more information, lenders or broker/dealers can contact James W. Hammersley, Deputy Assistant Administrator for Policy and Strategic Planning at james.hammersley@sba.gov.

Recovery Act Stimulates Increase in SBA Loans

Changes under the American Recovery and Reinvestment Act to U.S. Small Business Administration loan programs led to a rebound in SBA-backed loans for small businesses and greater access to much-needed capital.

Since the Recovery Act was signed on Feb. 17, SBA has supported more than $11.3 billion in lending to small businesses through its two largest loan programs and seen its average weekly dollar volume increase by more than 60 percent in comparison to the weeks before the Recovery Act.  Additionally, the average number of loans approved per week has increased by more than 50 percent. The dollar volume for September 2009 ($1.9 billion) was the highest single-month total since August 2007.

“These numbers, along with our conversations with lenders and small business owners around the country, show that the Recovery Act hit the mark,” SBA Administrator Karen Mills said. “The Recovery Act was critical to unlocking the market and as a result we’ve helped put billions of dollars of much needed capital in the hands of small business owners during this tough economic time, and brought more than 1,200 lenders back into SBA’s loan programs.  With half the nation’s workforce either working for or owning a small business, these dollars played a critical role in driving economic recovery across the country.”

Karen Mills

As a result of the credit crunch, SBA lending saw a significant decline in the fall of 2008 and early 2009. For the seven weeks prior to the Recovery Act being signed, SBA’s average weekly dollar volume was $165 million.  The average weekly average since the Recovery Act was signed, through Sept. 25, was $275 million.  

Mills cited Recovery Act provisions that reduced fees on SBA loans and raised SBA guarantees to 90 percent, as well as actions that reinvigorated the secondary markets for SBA-guaranteed loans as especially helpful in improving access to SBA-backed credit. 

Overall, SBA loan approvals for the fiscal year amounted to a combined 50,829 loans (preliminary number) worth $13.1 billion under the 7(a) and 504 loan programs.  The comparable figures for fiscal year 2008, which ended just as the nation’s economy entered the financial crisis, were 78,317 and $17.96 billion.  

The dollar volume totals for SBA loans in fiscal year 2009, which ended Sept. 30, do not include loans made under the agency’s ARC, (America’s Recovery Capital) loan program.  Launched on June 15, the agency has approved 2,715 ARC loans worth more than $88 million as of September 29.  Thus far, nearly 740 lenders have made ARC loans, and the number of participating lenders is increasing by an average of about 50 per week.

For more information about these and other SBA programs, visit the SBA Web site at www.sba.gov, or contact your local SBA field office.  You can find contact information for your local SBA office at http://www.sba.gov/localresources/index.html .

Self Employment Opportunity Summit Focus of September 28 Economic Perspectives

Stacy Dukes-Rhone, Executive Director of BiGAUSTIN, will be the September 28 guest on Economic Perspectives on KAZI 88.7 FM.  She will be discussing BiGAUSTIN’s Self-Employment Opportunity Summit being held October 1, 12 p.m. – 8 p.m. at Palmer Events Center in Austin, Texas.

The Self-Employment Opportunity Summit facilitates an environment to evaluate, examine, gather information and provide assistance to our small business community. It provides of an avenue for training providers, small business services providers, and lending institutions to outreach and effectively impact our community.  The Summit will provide  several session tracks where aspiring and existing entrepreneurs can learn and uncover opportunities. The session tracks are:

• Exploring Entrepreneurship “Is Entrepreneurship Right for You”, 
• Funding Opportunities “Need Credit, Need Money, Need Help…”
• Business Opportunities “What should I do?”
• Small Business in a Green Economy “What is a Green Economy?”

BiGAUSTIN provides entrepreneurial education, tailored business counseling and flexible loans for small businesses in Central Texas.

Best Sources for Small Business Loans Focus of August 3 Economic Perspectives

Even during these turbulent times, many financial institutions are still making small business loans.  Learn about some of the best sources for small business loans on the August 3 edition of Economic Perspectives on KAZI 88.7 FM.  The guests will be Theresa Lee, chief lending officer for the Texas Mezzanine Fund (TMF), Jaime Noyola, director of lending for the PeopleFund, Cindy Solano, Lead Lender Relations Specialist for the San Antonio District Office of the U.S. Small Business Administration, and Michelle Frith, outreach and marketing coordinator for the City of Austin Small Business Development Program (SBDP).

Texas Mezzanine Fund

Founded in 1998, TMF is a statewide community development financial institution that provides financing for businesses located in distressed areas, minority-owned businesses, and small businesses that create jobs for low and moderate-income people. It makes loans from $50,000 – $500,000 in tandem with other financial institutions and up to “stand alone” loans up to $300,000.  

PeopleFund

Since 1995 PeopleFund has strive ed to promote lasting economic vitality for low-income people by implementing strategies that create jobs, provide safe and affordable homes, and promote good economic policy decisions for communities.  It provides loans and revolving lines of credit from $20,000 – $200,000.

Small Business Administration

 The San Antonio District Office of the SBA provides financial assistance, business counseling and training and government contracting help to small businesses that are located in its area of operation which covers 55 counties in central and southwest Texas including the cities of Austin and San Antonio.  The SBA ’s most popular loan program is the 7 (a) program which may guaranty up to 90 perccent of a loan for a participating lender.  The maximum loan eligible for guaranty is $2 million.

City of Austin Small Business Development Program

The City of Austin SBDP provides counseling and assistance to small businesses.  It is hosting the 6th annual Meet the Lender Business Loan Fair on August 6 3 p.m. – 7 p.m. at the Palmer Events Center, 900 Barton Springs Rd.  This is an opportunity to meet, network, and learn from area lenders about the loan process for your small business.

Increased Equity and Venture Capital Funding Available For Small Businesses through SBA

From the press office of the U.S. Small Business Administration

Small businesses that would otherwise have difficulty securing private equity or venture capital may find funding easier to get as a result of changes made as part of the American Recovery and Reinvestment Act to the U.S. Small Business Administration’s Small Business Investment Company program.

“The Recovery Act expands SBA’s venture capital program to increase the pool of investment funding available to the Small Business Investment Companies licensed by SBA,” said SBA Administrator Karen G. Mills. “We believe those companies will be better equipped by these changes to help sustain and grow small businesses for their next important growth steps.”

Karen Mills

SBICs are privately owned and managed venture capital firms which are licensed and regulated by SBA. SBICs use a combination of funds raised from private sources and money raised through the use of SBA guarantees to make equity and mezzanine capital investments in small businesses. There are approximately 338 SBICs with $17.4 billion in capital under management.

The changes made as part of the Recovery Act are:

• The Recovery Act makes SBICs eligible for greater SBA guaranteed funding and requires SBICs to invest 25 percent of their investment dollars into “smaller” businesses. Also, the amount of funding an SBIC may invest in a single small business is set at 10 percent of an SBIC’s total capital rather than the previous limit of 20 percent of an SBIC’s private capital only. This translates to an effective 50 percent increase in funding available to a single business by an SBIC.
• Maximum SBA funding levels to SBICs will increase up to three times the private capital raised by the SBIC, up to a maximum of $150 million for single SBICs, or up to $225 million for multiple SBICs that are under common control. The cap for all licensees was set at $137.1 million before the Recovery Act.
• These limits are even higher for SBICs that are licensed after October 1, 2009, that certify that at least 50 percent of their investments will be made in small businesses located in low-income areas, up to $175 million for single licensees and up to $250 million for jointly controlled multiple licensees.
• Changes made to the SBIC program under the Recovery Act are permanent.

Industry associations have commended SBA for these changes and SBA continues to encourage new SBICs to apply for licensing and actively participate in the program.

The SBIC program was created to stimulate the growth of America’s small businesses by supplementing the long-term debt and private-equity capital available to them. Since the SBIC program’s formation in 1958 through April 2009, it has invested approximately $56 billion in more than 106,000 small businesses in the United States. For more information about the SBA’s Investment Division and SBIC program, go to www.sba.gov/INV or call 1-800-U ASK SBA.

Alternative Business Financing Focus of July 13 Economic Perspectives

Carlos Weil will discuss the alternative financing his company provides for small businesses on the July 13 edition of Economic Perspectives.  Weil is CEO of Capital Solutions Bancorp, a financial services company with operations in North America, South America, Europe and Asia.  TO LISTEN TO THIS INTERVIEW CLICK HERE: Carlos Weil Interview

Carlos Weil

Founded in 1996 by Weil and Paul Simko, Capital Solutions is an independent offshoot of a 43-year-old South American financial services firm. Capital Solutions focuses on providing flexible and affordable working capital to small and mid-size business that are looking to grow. The financial products provided by Capiatl Solutions include:

• Accounts Receivable Financing
• Purchase Order Financing
• Purchase Order Guaranty
• Financing to Purchase Businesses

The firm was established to offer reasonably-priced financing options for businesses that are frustrated by traditional banks that do not recognize their borrower’s ability to grow.

SBA Launches New Loan Program for Struggling Businesses

Provided by the SBA Press Office

Small businesses suffering financial hardship as a result of the slow economy may be eligible to receive temporary relief to keep their doors open and get their cash flow back on track through to a new loan program announced by SBA Administrator Karen G. Mills.

Karen Mills

Beginning on June 15, SBA will start guaranteeing America’s Recovery Capital (ARC) loans.  ARC loans are deferred-payment loans of up to $35,000 available to established, viable, for-profit small businesses that need short-term help to make their principal and interest payments on existing qualifying debt.  ARC loans are interest-free to the borrower, 100 percent guaranteed by the SBA, and have no SBA fees associated with them.

“These ARC loans can provide the critical capital and support many small businesses need to make it through these tough economic times,” said Administrator Mills.  “Together with other provisions of the Recovery Act, ARC loans will free up capital and put more money in the hands of small business owners when they need it the most. This will help viable small businesses continue to grow and thrive and create new jobs in communities across the country.”

As part of the Recovery Act, the ARC program was created as a no-interest, deferred payment loan to help small businesses that have a history of good performance, but as a result of the tough economy, are struggling to make debt payments.

ARC loans will be disbursed within a period of up to six months and will provide funds to be used for payments of principal and interest for existing, qualifying small business debt including mortgages, term and revolving lines of credit, capital leases, credit card obligations and notes payable to vendors, suppliers and utilities.  Repayment will not begin until 12 months after the final disbursement.  Borrowers don’t have to pay interest on ARC loans.  After the 12-moth deferral period, borrowers will pay back the loan principal over a period of five years.

ARC loans will be made by commercial lenders, not SBA directly.  For more information on ARC loans, visit www.sba.gov.

New Leader of U.S. Small Business Administration Testifies Before Senate Small Business Committee

L-R: Karen Mills and Senator Mary Landieu

Karen Mills was confirmed by the U.S. Senate by unanimous consent as the 23rd Administrator of the U.S. Small Business Administration on April 1.  Enclosed below is an excerpt from her statement to the Senate Small Business Committee on the day of her confirmation.  The Senate Small Business Committee is chaired by Louisiana Democratic Senator Mary Landrieu and its ranking member is Maine Republican Senator Olympia Snow.

Small business is the heart of the American economy. There are over twenty-six million small businesses in this country and they create 70 percent of the new jobs. This means that to find our way out of the current economic crisis, we have to find ways to help small businesses stay in operation and even expand.

There are at least two kinds of small businesses that are served by the Small Business Administration. The first are the small businesses on Main Street – the restaurants, the drycleaners, and the car repair operations –that are a part of our daily lives. These businesses depend on credit from the SBA’s 7a and 504 programs and advice from more than 14,000 SBA affiliated counseling centers.

The second type are the high growth, high impact businesses which have the potential to grow into the next American giants.

Did you know that Federal Express, Apple and Intel all were at one time supported by the SBA? Others include AOL, Ben and Jerry’s Ice Cream and UnderArmor – a company that makes high-performance sports clothing which my family purchases a great quantity of this time of year during lacrosse season – it was started not far from here in a basement in Georgetown.

These businesses all started out getting an SBA loan, a government contract or an SBIC investment. For all of these enterprises, from Main Street shops to the next potential Intel, we know one thing: if the SBA can help these small businesses grow and prosper, jobs will be created, and America will be able to compete anywhere in the world.

Today, however, small businesses face an uncertain future.  The recession has reduced demand for their goods and services. With the credit crisis, it is increasingly difficult for them to find financing for normal business activities and expansions.

Currently, loan guarantees from the SBA are down by over 50% from their levels a year ago. There are several causes of this decline—and they are inter-related: lower creditworthiness of borrowers, tighter lending standards, lack of liquidity in bank balance sheets, and a frozen secondary market for SBA guaranteed loans.

The Congress and this Committee deserve great praise for recognizing these problems and for incorporating important proactive measures for small business in the Recovery Act. This Act reduces fees to both borrowers and lenders, increases the guarantee percentage on SBA loans and works to unfreeze the secondary markets. In addition, many viable but struggling businesses will get a $35,000 lifeline to bridge them for 6 months of interest and principal payments—which the SBA will fully guarantee.

As you all know, on March 16th, the President committed $15 billion from the Troubled Asset Relief Program to be available to purchase SBA guaranteed paper in the secondary markets. This effort in conjunction with the SBA 90% guarantees and the fee reductions will go a long way to unlocking the credit small businesses need.

If confirmed, I pledge to work as a partner with this Committee to fully implement these important recovery programs.

Senators, today small businesses are suffering and the SBA has lacked the leadership and the resources to help them. These are problems we can fix.

If confirmed I will work on three important fronts:

First, the SBA must continue executing the plans in the Recovery Act and get capital flowing again through the core SBA loan programs.

Second, we must reinvigorate the Agency by attracting a strong and passionate leadership team and investing in the information technology the agency needs to operate.

Finally, we must – and I will – act as an advocate for small business across the administration. As Chair Landrieu and Ranking Member Snowe have suggested, I will coordinate with other Agencies, including Commerce, Labor and Energy, whose programs also affect small businesses.

To listen to Karen Mills’ tesimony before the U.S. Senate Small Business Committee click the following link: Karen Mills Testimony

The Future of Small Business Under President Obama Focus of March 30 Economic Perspectives

Jeannette Peten will discuss the future of small business under President Barack Obama’s Administration on the March 30 edition of Economic Perspectives.  Peten is the founder and president of BiGAustin, the 2nd oldest microlender in Texas.  Founded in 1995, BiGAustin provides entrepreneurial training, business counseling, and loans up to $50,000 to small businesses in central Texas.  It has served over 1600 small business owners and aspiring entrepreneurs.  BiGAustin has helped its clients leverage $6 million in financing to start or expand their businesses.

Jeannette Peten

Peten, who has a business degree from The University of Texas at Austin, has been providing financing, training, and technical assistance to small, minority, and women-owned businesses since 1989.  She served for six years on the Board of Directors of the Association of Enterprise Opportunities, the leading voice for microenterprise in the nation.  Peten has also testified in support of the the SBA Microenterprise Loan Program before the U.S. House of Representativess Small Business Committee

She started working with small businesses as a business consultant for Grant Thornton CPA firm while it was operating the Austin Minority Business Development Center.  In addition to her small business experience, Peten worked in corporate finance for IBM and Merrill Lynch.  She also served as

Peten says her passion for helping small businesses came from her family experience in entrepreneurship.  Her father owned a construction firm and her mother operated a beauty salon in her home town of Philadelphia.  Both her parents benefitted from special assistance programs for minority businesses.

Podcast: SBA Official Provides Information on Latest Steps to Increase Small Business Loans

The U.S. Small Business Administration’s Associate Administrator for Capital Access Eric Zarnikow revealed that the U.S. Treasury Department will commit up to $15 billion to help unlock the frozen credit markets by purchasing small business loan securities currently frozen on the secondary market in his interview on the March 16 edition of Economic Perspectives.  By purchasing these securities the SBA expects to jumpstart small business lending.  Zarnikow said the number of SBA loans this fiscal year has declined 50 percent compared to last year.

Eric Zarnikow

Zarnikow also discussed the benefits small businesses will receive as a result of the American Recovery and Reinvestment Act in the interview.  The Recovery Act contains a package of loan fee reductions, higher guarantees, new SBA programs, secondary market incentives, and enhancements to current SBA programs that are designed to unlock the credit markets and facilitate the economic recovery of the nation’s small businesses.

Among the key provisions being implemented this week to enhance SBA loans are the following:

• Temporary elimination of all borrower fees for SBA 7(a) loans and borrower and lender fess for SBA 504 loans until the end calendar year 2009 or until funds are exhausted
• Temporary increase of 7(a) loan guarantees up to 90 percent until the end calendar year 2009 or until funds are exhausted

Zarnikow will host a web chat on March 19, 12 p.m. – 1 p.m. Central Standard Time to provide small business owners an opportunity to obtain answers to their questions about how the Recovery Act will assist them.  Participants can join the live web chat by going online to www.sba.gov and clicking the “online Business Chat” icon.

To listen to the Economic Perspectives’ interview with Zarnikow, click here.