Small business owners got the break they’ve been hoping for when President Obama signed the Small Business Jobs and Credit Act of 2010 on Sept. 27. The legislation also affects thousands of SBA loans currently in the pipeline and offers business owners an affordable opportunity to expand or hire new employees by increasing the borrowing limits and waiving guaranty fees.
But owners may be left out in the cold unless they act quickly and prudently. The program is scheduled to run until Dec. 31, 2010, or until the funding is exhausted, and navigating the application process can be challenging. Loan officers are compelled to closely scrutinize applications and applicants because of the fragile economy and the lending standards set forth by the SBA and participating banks.
“The funds can only be used for certain purposes and banks are required to review documentation and assess the business owner’s character and creditworthiness,” says Anna Chung, senior vice president of the SBA Lending Group at Wilshire State Bank. “But the legislation still provides a great opportunity for business owners who do their homework, meet the qualifications and skillfully navigate the lending process.”
Smart Business spoke with Chung about this ripe opportunity for business owners and her tips for navigating the SBA loan process.
Why is this legislation beneficial for small business owners?
In the midst of a very tight credit market, the legislation provides $30 billion dollars more in funding and another $12 billion dollars in tax breaks to help small businesses expand and start hiring. Perhaps the best news is that the bill incentivizes both parties to consummate a deal. First, the program eliminates the loan guaranty fees that were previously paid by borrowers. That’s a substantial savings since fees average around 3 percent of the loan. Second, the SBA reduces the risk for banks by guaranteeing up to 90 percent of the exposure. Third, those businesses having a tangible net worth of $15 million and two-year average net income after federal income tax of $5 million are now eligible for the SBA program. The previous size standards were based on the number of employees or annual sales. Last, the new law permanently increases the limits on 7(a) and 504 loans from $2 million to $5 million, and the limits for manufacturers in the 504 program have been increased to $5.5 million.
