SBA 504 Refinance Program a Failure

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I’ve written several times in the past year about the September 2010 newly launched SBA 514 program, and like so many government programs as of late, has been a failure. 

How could this happen so quickly?  It has gone in one year’s time from considerable fanfare in September 2010 to dormant today.  Only about $50,000,000 in total loans have been issued from the $15 billion allocated to the program.  The program was bound to be attractive with up to 90% LTV with very low rates and long 20 to 25 year amortizations.  So what happened?

We’re all heard the old cliché that the ‘devil is in the details’.  Well those details eliminated about 99% of all loan requests.  None of mine made it.

There was a major delay getting the program moving which wasted about six months of the two year window that the program was to be in effect.  Probably just bureaucracy doing what it generally does best.

Other major issues were that the linage of the existing loan also had to qualify under 504 rules meaning if more than 15% of the borrows’ existing debt was ever used to finance working capital then that portion of the debt was ineligible and killed the entire SBA 504 refinance.   This requirement has not been modified or eliminated.

Another problem is that the existing loan had to balloon before 12-31-12 to qualify, which in itself probably eliminated 90% of the loan requests.  This requirement was later modified to requiring a loan that balloon period regardless of time.  Then later even this requirement was dropped.

You also can’t refinance an existing government loan such as a 7a

The appraisal had to be ordered prior to loan submission, so borrows were reluctant to spend that considerable sum before they had any idea whether their loan request would be approved.  If I’m not mistaken, this requirement has also been eliminated and can be done after commitment.

It’s such a shame to have wasted the first year of this program working the bugs out when so many small businesses could have benefited.   There is still just a little over a year left in the program so maybe the responsible parties can get their act together and do something useful with the time left.