SBA Lending Matters Newsletter
A Word from Arne

We’re reporting on several important developments of interest this month:

  • The SBA’s new software platform, available soon 
  • A new Senate bill of immediate concern to community banks
  • A better alternative and how you can help

As always, H&M is eager to help you with anything SBA related – so read on, and let us know if you need assistance of any kind!

SBA One Software Nearing Release Date
The SBA will soon roll out its new software platform, SBA One, to further streamline the SBA’s delivery system. The new platform will become mandatory in a few months. I can remember processing large SBA application files on a Remington Rand typewriter -- the move to electronic processing was a welcome change. In recent years, we’ve used a couple of different software platforms to provide great service to H&M clients, and we’ve also participated in the Beta testing of SBA One at the SBA’s request. You can be sure that all Holtmeyer & Monson client applications will conform to SBA requirements when the SBA finalizes the implementation date for SBA One. 

New Senate Bill That Needs Your Attention
Last week, Senators David Vitter (R-LA) and Jeanne Shaheen (D-NH) introduced S.2992, the Small Business Lending Oversight Act of 2016. By strengthening oversight of the SBA 7(a) program, this proposed bill will help to ensure the program’s continued safety and soundness as overall volume of 7(a) lending continues a significant growth trend. This growth is a very good thing, but it necessitates a greater emphasis on prudent lending practices. While many aspects of the S.2992 are needed and welcomed, one provision disproportionately harms community banks that originate SBA 7(a) loans and sell the guarantees into the secondary market. Presently, the SBA charges those lenders a fee equal to 50% of the sale price that exceeds 110% of the outstanding principal of the guarantee portion. In the new legislation, that threshold would be lowered to 108%, effectively increasing the fee banks pay.  Three of the largest SBA lenders, Wells Fargo, US Bank and JP Morgan Chase (which represented about 14% of all SBA 7(a) loans generated in 2015), do not sell their 7(a) guarantees and are not subject to the fee. The majority of the secondary market activity comes from community banks, which is where this proposed change would hit the hardest.

A Better Alternative and Your Next Move
While the SBA operates on a zero subsidy basis, the agency assesses user fees to support its operations and potential losses. Because community banks drive most of the fee income the SBA realizes from secondary market sales, I believe a far better solution to this issue – and one that would be more equitable for community banks – would be to reinstate a guaranty fee on all 7(a) loans and lines of credit. Currently, guaranty fees are waived on any term loan or LOC up to $150,000. A guaranty fee is also waived for the Veterans Advantage Loan Program, with a maximum loan amount of $350,000. Reinstating those fees would help level the playing field for all SBA lenders.

Quick action is required to prevent the proposed increase in the secondary market sales fee. I encourage you to contact your Senators and Representatives and advise them that this provision will have an unfair impact on community banks, and that much better alternatives can help keep the Small Business Administration vibrant and healthy.

Whether you have questions about legislation, loan details or other SBA matters, we at Holtmeyer & Monson welcome the opportunity to help you with answers. As a qualified Lender Service Provider, we serve as the out-of-house SBA loan department for banks across the country and are proud to be named a Preferred Service Provider of the Independent Community Bankers of America.

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Featured Article

Making SBA Lending Profitable: Community Bank Executives Share their Perspectives

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Holtmeyer & Monson hosted a panel discussion at ICBA Community Banking LIVE 2016, entitled Bank Executive Panel: Making SBA Lending Profitable. Leaders from three ICBA member banks joined H&M President Arne Monson to answer questions from an audience of bankers regarding SBA lending and how community banks can profit from this strategic lending product. This recap contains the audience’s questions and panel responses, grouped by topics of interest.

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Regulatory Corner

Refinancing Another Institution’s SBA (7a) Debt
We frequently receive calls from clients wanting to refinance SBA 7(a) debt currently held by another institution. This process has become exceedingly difficult to complete. The SBA maintains – rightly so – that a borrower who has paid a guaranty fee on the original loan transaction should not be subject to another fee. Additionally, SBA stipulates that to be eligible for refinancing, the existing debt must be held on “unreasonable” terms. Since all 7(a) loans are initially performed with strict due diligence, it seems illogical that an existing debt is not on reasonable terms – making it nearly impossible to refinance. An alternative approach is to transfer the guaranty from the other institution to yours. The SBA has established a protocol for this transaction, and H&M will be happy to assist in the process.  After the loan is transferred from the original lender to your institution, you can re-amortize and/or modify the debt. Please call your Holtmeyer & Monson representative for additional details on this matter.

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SBA Hot Topic
Historically, “boilerplate” language in an SBA Authorization could be waived or modified upon borrower’s or lender’s request. No more. Such modifications are state specific. Now the SBA district office in the state where the lender is located will likely rule on those requests and forward them to the SBA Servicing Center for action.

 

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