Banks and credit unions would have an opportunity to participate in a huge expansion of Small Business Administration (SBA) lending programs under a bipartisan stimulus package approved by the Senate late Wednesday.
Stimulus Bill Expands SBA 7(a) Opportunities for Financial Institutions
- Financial institutions have an opportunity to participate in a huge expansion of SBA lending programs under a stimulus package expected to be voted on by the Senate.
- The new loan program would lift certain requirements for borrowers, such as those related to personal guarantees and collateral.
- Maximum amounts for SBA Express Loans would increase to $1 million.
CARES Act: $349 billion for expanded 7(a)
The Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, includes $349 billion for an expanded SBA 7(a) loan program that would allow currently certified SBA 7(a) lenders to quickly offer loans of up to $10 million to businesses with up to 500 employees, as well as to non-profits, self-employed individuals, and contractors. The SBA and the Treasury Secretary would also streamline the process to add lenders to the program quickly so they, too, can process, close, disburse, and service the loans, which would be forgiven if employers maintain their payroll through June 30 or bring back their workforce. New lenders would only be permitted to make loans under the stimulus program, called the Paycheck Protection Program, and would be unable to make regular 7(a) loans, according to a summary of the bill from Sen. Marco Rubio’s (R-FL) office.
The new SBA loans would be eligible to be sold on the secondary market and would receive a risk weighting of 0 percent related to financial institutions' risk-based capital requirements. They would be eligible to cover more employer costs than the existing 7(a) program. In addition to current allowable uses, loans could cover:
- Payroll costs, including payment of cash tips
- Employee salaries and commissions
- Continuing group health care benefits during paid sick, medical or family leave, and insurance premiums
- Rent (including rent under a lease)
- Interest payments on mortgages
SBA loans with a remaining balance after the government’s forgiveness was applied would continue to be guaranteed and would have a maximum 10-year maturity. Interest rates could not exceed 4%.
Certain 7(a) requirements lifted for new program
Current requirements that a small business be unable to obtain credit elsewhere, provide personal guarantees, or provide collateral will not be required for approval under the SBA program, which is part of the stimulus bill aimed at boosting the U.S. economy in the face of widespread business closings and supply-chain disruptions related to coronavirus-related concerns. The Paycheck Protection Program also waives borrower and lender participation fees, includes an automatic one-year deferment of payments, and has no prepayment penalties.
Processing fees paid to SBA lenders for covered loans would be based on the balance of outstanding financing at the time of disbursement of the covered loan:
- 5 percent for loans of not more than $350,000
- 3 percent for loans of more than $350,000 and less than $2,000,000
- 1 percent for loans of not less than $2,000,000
SBA Express Loan maximums lifted
The maximum loan amount for SBA Express Loans would also be increased from $350,000 to $1 million to provide revolving lines of credit for working capital.
“I am confident that we have assembled a bipartisan emergency relief package that will get cash to small businesses, and the Americans they employ, that desperately need it during this pandemic,” said Senator Marco Rubio (R-FL), Chairman of the Senate Committee on Small Business and Entrepreneurship, in a statement. Rubio was one of the leaders who has pushed the expanded SBA program.
Lenders would also see temporary relief from disclosures related to troubled debt restructurings, or TDRs, under provisions of the bill. According to a copy of the bill, “Notwithstanding any other provision of law, an insured depository institution or an insured credit union that modifies a covered loan in relation to COVID–19-related difficulties in a troubled debt restructuring on or after March 13, 2020, shall not be required to comply with the Financial Accounting Standards Board Accounting Standards Codification Subtopic 310-40 (‘Receivables – Troubled Debt Restructurings by Creditors’) for purposes of compliance with the requirements of the Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), until such time and under such circumstances as the appropriate Federal banking agency or the National Credit Union Administration Board, as applicable, determines appropriate.”