Small-business owners will continue to have access to affordable credit with recent extensions of federal programs to reduce borrowing costs.
In late December, President Obama signed a bill that included $125 million to continue the reduction of fees in the U.S. Small Business Administration’s 7(a) and 504 loan programs. The new funding allows us to waive the 1.5 percent processing fee and the bank participation fee of 0.5 percent on 504 loans. On a $1 million project, the fee waivers can result in an $8,500 savings to the borrower.
The December bill also extends the SBA program to increase its guarantee on 7(a) loans to 90 percent. This increase in guarantee levels should help provide banks with greater confidence to extend credit during the current economic climate.
It’s important to act quickly to take advantage of these cost-saving programs. Both of the programs were originally part of the American Recovery and Reinvestment Act, the economic stimulus bill. The SBA originally received $375 million to increase its guarantee on 7(a) loans and to waive borrower fees, but the money was exhausted in November. The extension authorizes the higher guarantee until Feb. 28, 2010 and the fee relief until the funds are gone.
The House jobs bill passed in late 2009 does include funding for a further extension of the fee relief and increased loan guarantees until the end of fiscal 2010. The Senate must still consider the bill.
The fee waiver, combined with low interest rates, make this an excellent time to borrow for small businesses interested in expanding. Currently, the 20-year fixed rate is approximately 5.8 percent, still near historic lows.
The 504 loan program provides long-term, fixed-rate financing, with a low down payment, for commercial real estate. The 7(a) loan program is SBA’s primary and most flexible lending program, with financing guaranteed for a variety of business needs.
Horizon is an SBA-certified development company that works with banks to provide loans to small businesses under the programs. Over the last 25 years, we’ve participated as a lender in more than 1,000 projects, investing more than a half-billion dollars.