Fees Eliminated on 504 Loans
Secondary Market Revived
Effective today, March 16, 2009, fees for both borrowers and lenders on 504 loans have been temporarily eliminated, announced Acting Administrator Darryl K. Hairston of the U.S. Small Business Administration (SBA).
Both the bank participation fee of 0.5% and the certified development company (CDC) processing fee of 1.5% will now be zero through calendar year 2009, or until the funds are exhausted, according to the SBA.
Below is an example of how the fee reductions will impact a $2MM total project with a typical 50/40/10 structure.
Additionally, effective immediately, the Treasury Department will commit up to $15 billion to help unlock the frozen credit markets by purchasing small business loan securities currently frozen on the secondary market, according to the SBA. By purchasing these securities, it will unlock these secondary markets, and in turn, free up more capital to jumpstart lending for small business owners. Another important, but yet to be implemented, change under the Act is the refinancing of existing government guaranteed debt, including 504 loans. Permissible debt financing includes:
(A) Any 504 project "may include a limited amount of debt refinancing."
(B) If the project involves expansion of the small business, an amount not to exceed 50% of the project cost may be refinanced, if:
Secondary Market Revived
Effective today, March 16, 2009, fees for both borrowers and lenders on 504 loans have been temporarily eliminated, announced Acting Administrator Darryl K. Hairston of the U.S. Small Business Administration (SBA).
Both the bank participation fee of 0.5% and the certified development company (CDC) processing fee of 1.5% will now be zero through calendar year 2009, or until the funds are exhausted, according to the SBA.
Below is an example of how the fee reductions will impact a $2MM total project with a typical 50/40/10 structure.
Currently |
|
After application of fee elimination |
||
Net Proceeds |
$800,000 |
|
Net Proceeds |
$800,000 |
CDC Fee (1.5%) |
$12,000 |
|
CDC Fee (1.5%) |
$0 |
Closing Cost |
$1,500 |
|
Closing Cost |
$1,500 |
Colson Fee (.25%) |
$2,000 |
|
Colson Fee (.25%) |
$2,000 |
Underwriter (.4%) |
$3,276 |
|
Underwriter (.4%) |
$3,228 |
|
|
|
|
|
TOTAL |
$818,776 |
|
TOTAL |
$806,728 |
GROSS LOAN |
$819,000 |
|
GROSS LOAN |
$807,000 |
Cash to Borrower |
$224 |
|
Cash to Borrower |
$272 |
|
|
|
|
|
Bank Participation Fee |
$5,000 |
|
Bank Participation Fee |
$0 |
|
|
|
|
|
TOTAL FEES |
$23,776 |
|
TOTAL FEES |
$6,728 |
TOTAL SAVINGS OF $17,048!!!!!!!!!!!!! |
||||
Additionally, effective immediately, the Treasury Department will commit up to $15 billion to help unlock the frozen credit markets by purchasing small business loan securities currently frozen on the secondary market, according to the SBA. By purchasing these securities, it will unlock these secondary markets, and in turn, free up more capital to jumpstart lending for small business owners. Another important, but yet to be implemented, change under the Act is the refinancing of existing government guaranteed debt, including 504 loans. Permissible debt financing includes:
(A) Any 504 project "may include a limited amount of debt refinancing."
(B) If the project involves expansion of the small business, an amount not to exceed 50% of the project cost may be refinanced, if:
- Proceeds will be used to acquire land, to construct or expand building or to purchase equipment.
- Existing debt is collateralized by fixed assets.
- Existing debt was incurred for benefit of small business.
- Proceeds will be used only for refinancing existing debt or costs related to the project.
- It will provide a substantial benefit when prepayment penalties, financing fees and other financing costs are accounted for.
- Borrower is current on all payments of the existing debt for not less than one year.
- New financing will provide better terms or interest rate.