Loans don’t go “on sale” very often, but right now a “good deal” is targeted toward northern Michigan’s primary economic driver – the small business owner.
Since Oct. 1, the U.S. Small Business Administration (SBA) has been waiving both the annual servicing and upfront guaranty fees on all of its 7(a) loans – its most popular lending program – in the amount of $150,000 or less.
For all intents and purposes, however, the fee waiver effectively started Oct. 17 due to the government shutdown, explains Brad Dyksterhouse, senior vice president, business resource lending for The Bank of Northern Michigan in Traverse City. The waiver is in effect through the end of fiscal year (FY) 2014: Sept. 30, 2014.
So what does this mean for the local manufacturer who needs to purchase equipment to expand into a new product line, or the restaurant down the street looking to refinance its debt?
Essentially, it’s a savings of up to $2,550 in fees. Because the SBA is not charging lenders a guaranty fee, they cannot charge one to the borrower. On a $150,000 loan, for example, the lender can receive up to an 85 percent SBA guaranty ($127,500) – and traditionally a 2 percent up-front guaranty fee is passed on to the borrower.
The fee waiver could also possibly reduce interest rates (note: This does not take into account a discretionary “package prep” fee a lender might charge).
Why the waiver, and why now?
“The SBA had noticed its average loan size was creeping up,” Dyksterhouse says. “Its goal is to serve as many businesses as it can with a finite budget. This spurs on those smaller borrowers that may need it the most.”
According to the SBA website, the average 7(a) loan amount in FY 2012 was $337,730. For FY 2013, which just ended September 30, there were 46,399 SBA 7(a) loans approved for a total of just under $17.9 million. That represents a five percent increase in quantity over FY 2012 and an 18 percent increase in dollar volume.
Mike Witkop is senior vice president, business banking market manager for Huntington National Bank in Traverse City. He says this SBA fee waiver works well for the bank’s distribution network. “We can deploy these loans through 27 locations” across the region. “It’s a pretty nice impact in the community.”
In addition to a year of “record growth” for the bank, 43 percent of its loans have been SBA loans, Witkop adds.
The up to $150,000 loan can be for any “active business purpose” – from starting a business to buying a building or equipment, for increasing a business’ working capital line or to refinance debt.
But is there a delay to getting approved as a result of the 16-day government shutdown? Not if the lender is a preferred lender.
“We can approve the loans in-house, so there is no worry about backlogs,” says Dyksterhouse of its preferred lender status, along with Huntington and other area financial institutions.
Last week, the SBA reportedly had 700 loan applications waiting to be approved.