Refinance of Maturing Debt Program Update

May 31, 2012, Refinance
Tags: sba refinance, small business refinance

The SBA 504 Loan Program, a long standing cornerstone to small business finance, has gained more awareness in the marketplace since the passing of the Small Business Jobs Act in 2010.

With the September deadline approaching on the temporary debt refinance component of the SBA 504 Loan Program, many are scrambling to submit loans and reap the benefits that this program has to offer. The deadline for SBA submission is September 27, but recent talks have the small business lending world abuzz with the possibility of extension.

NADCO (National Association of Development Companies) recently held their Annual Meeting in Orlando where attending Congressional staff members discussed the anticipation for extending the Temporary Debt Refinance Program. The Temporary Debt Refinance Program was created as part of the Small Business Jobs Act in order to refinance ballooning or maturing small business loans with the more attractive financing of a SBA 504 Loan. Congressional staff members announced that Senate Bill 2364 was introduced in the Senate in early April, and referred to the Senate Small Business Committee for its consideration. NADCO and Certified Development Companies (CDCs) around the nation anticipate and hope to see the bill passed through the Senate.

To aid the progression, CDCs are in the process of contacting our Senators to encourage the backing of the bill. Previously, a similar bill, House Bill 3606 fell short by six votes – demonstrating equal bi-partisan support for extending the program. CDCs are encouraged that S. 2364 will receive bi-partisan support and pass before the September 27th deadline.

Although gaining momentum, the program continues to get scrutinized because of loan losses in the SBA 7a and SBA 504 loan programs. Budget pressure in both Administrations means it is not likely we will see government subsidy in the program in 2013. It is likely that fees will increase to offset the loan losses, but CDCs are seeking alternatives to prevent fee increases.

The Temporary Debt Refinance program was originally provided a $7 billion appropriation. However, by the beginning of April 2012, only $700 million was designated to small businesses through this program. An extended deadline would allow small businesses to continue benefitting from the job retention aspect of the program, while allowing SBA to fund these maturing debt loans with the appropriations that were previously authorized in the Small Business Jobs Act.

Heading up the charge is the new Associate Administrator of the Office of Capital Access in Washington D.C., Jeanne Hulit. Hulit is seeking simplification of the program and removing the non-value-add processes. This simplification will allow the process to be more streamlined and accessible to both the lending partner involved in the loan funding, as well as the small business owner seeking funding.

Capital CDC is hopeful that the extension proposal in S.2364 will be passed before the September deadline, and encourages all lenders and proponents of the program to proactively reach out to their Senators in support of S.2364. As a program fully funded by borrowers, CDCs, and banks, the benefits far outweigh the risks.

We are looking to small businesses to pull us out of this recession. By providing financing opportunities at low, 20-year fixed rates, a business can improve their monthly cash flow have access to building equity for much needed working capital. If lenders are reluctant to lend to small businesses, this program is attractive to them, as it helps expand access to capital for small businesses throughout the nation, while benefitting the banks. Lenders can use the Debt Refinance Program to provide cash out for the business expenses, as well as to capture business from other lenders. Furthermore, banks can improve their CAMELS ratings using SBA lending.

SBA loans are always capital accretive when sold, which will improve their Risk-Base and leverage capital ratios. This is especially beneficial when banks use SBA loans to refinance existing conventional loans. Furthermore, SBA loan guarantees mitigate risk in existing loan portfolios, reducing undesirable concentrations and allowing the bank to retain clients who are close to their legal lending limits. Finally, implementing the SBA program to improve earnings, capital ratios, and liquidity as well as reduce risk will reflect positively on bank management.

–Jen Glatz, Marketing Manager

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