January 23, 2017
By Bob Coleman
Editor, Main Street Monday
Main Street Monday — Listen to SBA Administrator Nominee Linda McMahon’s Hearing Tomorrow
Tuesday, January 24, 2017
10:30 AM Eastern
Reprinted from the December 13, 2016 Coleman Report
Linda McMahon’s #1 Priority as SBA Administrator Should be. . . . . . . .
I’ve listed all responses in our informal December 2016 poll of what the new Administrator’s number one priority should be when she hits the ground running next year.
Responses are generally:
Many of you want an Increase SBA 7(a) loan guaranty percentages, especially for micro loans.
And to loosen SBA 504 debt refi rules.
The recent program name changes to Advantage and Grow are met with universal, underwhelming support.
Finally, many call for continuing streamlined SBA lending programs and reduce regulations.
Here are your specific comments:
SBA 7(a) Loan Program Changes
The Express maximum loan amount has to be increased. It’s a great platform for small, local lenders without a lot of program experience to enter the SBA space without committing to a staff specialized in 7a lending. It will help get adequate capital into the hands of small businesses that need it.
One standard guaranty percentage for the 7A program (i.e. 85%) instead of several different guaranty percentages based on type of loan and amount of loan. Also, a set guaranty fee (i.e. 2.5%) on the loan amount instead of a tiered structure that’s hard to explain to borrowers.
Increase the SBA guaranty to 100% for the SBA Veteran Advantage and Community Advantage loan programs.
Increase the guaranty on smaller loans.
Increased guarantee percentage for 7(a) program.
Eliminate the split on premium income all together. Instead, take the cost of lender oversight and credit risk management and distribute that evenly on a per funded dollar basis.
Make it easier for small businesses to get $150M or less quickly and more effectively.
Streamlining the voluminous paperwork for small 7a loans; improving SBA1 – double entry is necessary until they complete the application.
Increase the guaranty %.
I would like to be able to create all loan closing documents through SBA One.
Open SBA One to work with Lenders existing loan systems.
I’d like to see less political pushing for SBA One, especially when it isn’t ready for prime time.
Special streamlined 150K and under liq procedures , compromise procedures and PDK’s.
Jumbo loan program for projects in manufacturing in distressed areas with guarantee levels allowing Community Bank access.
Massive internal reform in Herndon+ decentralize handling of cases over $2.5MM which require multidisciplinary experienced local administration. Herndon Ombudsman with authority to break impasses over small items that hang up resolution for years.
We should tune our underwriting to charge off roughly 2.5% of what we guaranty. Right now we are charging off 1.5% and we aren’t taking enough risk.
Increasing the 7a loan limits and lowering the fees.
7(a) increase to $10,000,000.
Remove the EPC/OC rule in conjunction with SBA lending and using retirement funds as equity.
Lower 7(a) max loan limit from $5M to $2M.
Minimum equity requirements for all sba 7a loans.
Increased SBA Community Advantage Guarantee to 90%.
Enhance the micro loan program.
SBA 504 Loan Program Changes
Put 504 on a level playing field with 7a.
Fix the 504 Refi program by (a) extending LTV’s to 90% and (b) eliminating the restrictions on using refi dollars for construction or expansion costs. Both are non-statutory changes made by SBA bureaucrats that go against the intentions of Congress for the refi program.
Several key changes need to be considered within the 504 program, both in traditional 504 and refi programs. a. Reduce occupancy requirement on new construction from 80% (over the term) to 51%, same as for existing building. b. Reduce the term of 7A/Advantage Loan from 25 years to 20 years. c. Set up an expedient system to process 4506T requests with similar turnaround time such as INS clearances for LPR’s.
All owner user real estate to be underwritten the 504 Program as opposed to 7A unless it’s in the best interest of the borrower. Also to even the playing field by ridding the market of “100%” finance schemes. These changes are far too important to leave in the hand of an undereducated and unqualified individual.
I’d like to see 25-year amortizations (up from 20) on the SBA 504 permanent second lien loans.
Streamline 504 eligibility. Most of the SBA LO’s let alone the rest of us cannot properly interpret the SOP. It is almost as bad as the US tax code!
Introduce a 25 year debenture for the 504 program and continue to streamline the closing process.
Make 504 loan requirements mirror 7a where there are similar procedures/processes.
The refinance rules for both 7(a) now called Advantage and 504 now called Grow are too restrictive for common sense deals that help improve the cash flow of a business through a refinance under both programs.
Loosen the belt a little.
Remove some obstacles for down payment such as 60 day seasoning rules.
Improved SBA 504 Refinance Regulations.
Some type of workable SBA 504 PCLP program.
SBA should go the other direction on franchise lending, requiring that franchise systems with higher failure rates either provide robust step-in clause support or be ineligible to participate in SBA programs, placing the burden on lenders without sufficient guidance to comply with the requirements of the SOP.
More clarity around partner buyouts and earned equity in regards to change of ownership transactions.
No to New Names!
The name changes were awful!
No to further program name changes.
Keep the names 7a and 504.
Name change reversal for both 7(a) and 504 programs!
Keep it the names “7(a) and 504 — not “Grow” or whatever they came up with!
Bring back the old names of the program, 7a and 504.
Change the names back to what they were.
Scrap the new names. It was a nice idea, but they just don’t work.
Keep the names as is.
Get rid of the new names!
To reverse changing the names of the programs
Changes to SBA Policy
Reduce ALL of the regulations and simplify the process!
There is so much redundancy in the paperwork. It needs to be streamlined and simplified so the average consumer can understand what we need on the forms.
Less red tape for SBA 7(a) loans.
I would like to see SBA focus on streamlining loan regulations to help increase and expand the program. Old regulations need to be re-visited to see if they are still necessary and effective versus constraining. We need to move away from the ridiculous loan name changes proposed by the out-going Administrator.
Make the FDIC and the SBA work together so community banks can actually use the “score” model for the 7a small loans. This program works great for bigger banks who can handle the risk of smaller loans, and who have the resources to show their own scoring models work. Community banks don’t have these resources, and are still being told by FDIC that we can’t use SBA’s scoring model.
Focus on lending through community and regional banks who will develop a banking relationship with the small or start-up business, move away from equipment dealers and loan brokers feeding the securitization pipeline.
Take a more common sense and customer focus approach in dealing with the loan programs.
Elimination of “disaster” loans.
Centralize offices to save money. We only need 4 regional offices.
Focus on improving communications and execution of initiatives. Execution is unbelievably poor.
Make the SOP language easier to understand and eliminate the “vagueness” in much of the SOP rules/regs
Set up a panel of SBA bankers and SBA lending staff to entertain common sense deviations from the SOP on a case by case basis for SBA 7 and 504 loans. At present the processing center follows strict SOP guidelines.
Improve systems to create faster turnaround times.
Keep the 7(a) and 504 program only. Get rid of the rest of the programs.
More technical assistance.
Lower fees on the loan programs for proven businesses. A 10 year old company should not have the same expense as a risky start up. Fees should be determined on risk level not loan amount.
Better loan options for veterans and start-ups.