SBA Financing In 2009

SBA financing has seen many ups and downs in the last year.  No one did or could have predicted what has actually happened.  The Stimulus Package administered by the government, a welcomed surprise by most in the business, has for the most part been a success.  It has kept SBA loans viable (relative to other commercial mortgage programs that are now dead and gone) as well as motivated borrowers to use the program due to the reduced SBA financing fees. 

For banks and lenders it did two positive things as well – it increased the guaranteed portion of the loan amount from 75% to 90% (on SBA 7a loans) which encouraged banks to lend again and take on more risk.  Secondly, it has helped free up the SBA secondary market by purchasing approximately $15 billion of “frozen” debt that was clogging this market.  This is a very important point. 

SBA Financing

Most banks do not hold onto the loans that they fund.  They normally sell the loans off onto the secondary market for a premium.  During the height of the crisis the fees earned for banks by selling loans was down by approximately 90%...  From 12% to 2%.  This was one of the major reasons why SBA financing was so down during the end of 2008 and beginning of 2009.  The only banks and lenders that were lending, had the ability to hold onto the funded loans on their balance sheets. 

Most banks did not want to do this or could not do this for a varity of reasons, such as their own liquidity issues.  They needed to be able to immediately turn around and sell the loan off for a quick profit on the secondary market.  Because premiums where so down, many banks did nothing and waited until the market normalized. 

Premiums as of this writing are back up to approximately 85% – 90% of where they were before this crisis started.  Loans are being sold for a 9% and 10% spread.  This is perhaps the biggest success of the Stimulus Package. 

SBA Business Financing - Where are we going? 

All of the above is good news and but where do we go from here?  There are a couple of interesting dynamics in play.  One is what happens when the Stimulus Package runs out, which is now estimated to occur in November of 2009?  Will it be re administered, like some predict?  If not, the SBA fees will be put back into place and the guaranteed portion will drop back down. 

Will this slow borrowers and banks appetite for the program?  Probably, but what other options will borrowers have and for how long can healthy banks go without doing deals? 

What about the conventional secondary market?  Surely the government is looking at this though little seems to be publicly discussed.  The Mortgage Bankers of America reported that $50 trillion of conventional investment deals are coming due in the next 2 years, which currently do not fit any main stream underwriting parameters.  If this is not fixed, most of this debt could go into default. 

Conventional owner occupied loan requests, that do not fit the SBA underwriting box also face similar issues.  Try getting an 80% loan to value refinance done, without the SBA guarantee for example.  It is not going to happen. 

Bottom line, for most owner occupied borrowers, SBA financing will remain the most reliable and cost effective financing available in the market for the next year or so. And this is regardless if the SBA fees are put back into place.  If the conventional secondary market is repaired then things will surely re open and borrowers and us lowly commercial mortgage brokers will have more options to work with.