News

25-Year Debenture Announcement

SBA officials announced that the Office of Management and Budget (OMB) has cleared the way for the issuance of 25-year debentures in the SBA 504 loan program. This will allow small business borrowers a longer-term option in addition to the existing 10 and 20 year loan products. Improved cash flow is of vital interest to all businesses, especially those served by the 504 program, and the loner maturity is a vehicle that can serve that purpose.

The new 25-year debenture is a FY18 initiative and the details are still being finalized by SBA. While the timeline specifics have not been announced it is likely the launch will not occur until after the first quarter for FY18. 

 

Historic Low 504 Loan Pricing and Mitigated Risk

Most people would agree, when prices are good it is a good time to buy. For the month of September, the effective rate on 504 loan is 4.08% fixed for 20 years and 4.28% fixed for 10 years. Rates have been consistently good for several months, yet these are the best rates we have seen in years.

The 504 loan product has been a main stay in economic development through fixed asset financing for years. The reason for it's success can partly be attributed to the key advantages it offers both borrowers and lenders.

The key advantages it offers borrowers include a low down payment, a low fixed rate (thus a hedge against rate fluctuations) and the inclusion of most soft costs. For the lender, the 504 loan product offers limited credit and concentration risk while still meeting their customers' needs. In addition, Wakarusa Valley Development will shoulder the underwriting and packaging of the loan!

Given these advantages and our current economic cycle, low pricing and mitigated risk go well together, don't you think? If you have a prospective project, give us a call. Let's keep our momentum in moving our community forward.

 

We Have an App For That! (sort of)

In our fast moving and competitive world, our daily computing needs have moved to our smart phones. Wakarusa Valley Development's website has the tools to assist you with your clients while you are on the go.

Picture this scenario:

You meet a client for lunch to discuss possible financing options for a new building for her business. As you discuss the project, you realize a 504 loan may be an option. You'd like to visually show her the 504 loan structure for her project. Rather than fumbling with pulling out your laptop, wait for it to boot up, connect to the WiFi, etc, you simply pull out your smart phone, click on your WVDI 504 Loan Calculator bookmark, enter a couple fields of data and viola! You have your 504 loan project structure to show her right on your phone in less than 30 seconds.

If you haven't been to our website for awhile, please pay us a visit. We strive to provide up-to-date information and the tools to better serve you and your clients.

As a reminder, if you have any questions regarding the recently reinstated 504 Debt Refinance Program please do not hesitate to give us a call or have us come out to give your team a presentation and answer any questions.

504 Debt Refinance Program Requirements

As we announced in December, SBA will permanently reinstitute the 504 Debt Refinancing Program. As promised, here are the new rules and requirements to the program:

What is the Debt Refinancing Program?
Under the program, small business will have the ability to restructure a portion of their debt at low fixed interest rates up to 20 years.

Statutory Changes:
The Act made the following statutory modifications to the 504 Debt Refinancing Program:

- The 504 Debt Refinancing Program will be in effect only in any fiscal year in which the subsidy cost to the Federal Government of making guarantees under the 504 Debt Refinancing Program and under the 504 Loan Program is zero.

- Elimination of the alternative job retention goal authorized previously by the Jobs Act. Accordingly, all refinancing projects must satisfy the job creation and retention requirements that apply to any standard 504 project.

Eligibility:

- The Borrower must have been in operation for all of the two year period ending on the date of application, as evidenced by the financial statements submitted at the time of application. If the ownership of the Borrower has changed, either partially or fully during the two year period, the Borrower is considered a new business and the Borrower's debt is not eligible for refinancing under the 504 Debt Refinance Program.

- Any refinancing under the 504 Debt Refinancing Program must include Qualified Debt, as defined below. In addition, as further described below, the refinancing may also include Eligible Business Expenses, including "Business Operating Expenses" and "Other Secured Debt".

- "Eligible Fixed Assets" are one or more long-term fixed asset, such as land, buildings, machinery and equipment, acquired, constructed or improved by a small business for use in its business operations.

- "Qualified Debt" means a commercial loan:
- substantially all (85% or more) of the proceeds of which were used to acquire an Eligible Fixed Asset. If the Eligible Fixed Asset was originally financed through a commercial loan that would have satisfied the "substantially all" standard and that was subsequently refinanced one or more times, with the current commercial loan being the most recent refinancing, the current commercial loan will be deemed to satisfy this requirement
- that was incurred not less than two years prior to the date of the application
- that was for the benefit of the small business seeking the refinancing
-that has been secured by the Eligible Fixed Asset for at least two years
- for which the borrower has been current on all payments due for not less than one year preceding the date of application. "Current on all payments due" means that no payment was more than 30 days past due from either the originall payment terms or modified payment terms (including deferments)
- the Qualified Debt may consist of a combination of two or more loans, provided that each of the loans satisfies the Qualified Debt Requirements.

Borrower Contribution:

- In addition to a cash contribution, the Borrower's 10% contribution may be satisfied by its equity in the Eligible Fixed Asset(s) serving as collateral for the Refinancing Project or by the equity in any other fixed assets that are acceptable to SBA as collateral.

- An independent appraisal of the fair market value of the project assets and any additional assets offered as additional collateral must be provided. This appraisal must be dated within six (6) months of the date of application.

Same Institution Debt:

- When the loan being refinanced is Same Institution Debt (bank debt) the Third Party Lender (loan lender) may modify its existing loan documents (Note, Deed of Trust/Mortgage, etc.) instead of requiring the Borrower to execute and record new loan documents for the Third Party Loan.

Other Than Same Institution Debt:

- When the loan being refinanced is not same institution debt, SBA may permit the lender of the debt to be refinanced to assign its existing loan documents to the Interim Lender and if an Interim Lender is used, or to the Third Party Lender if not Interim Lender is used. The existing loan documents may be modified, as appropriate, rather than requiring new documents executed for the Refinancing Project. The Interim Lender, if any, may then assign the documents to the Third Party Lender.

Restrictions:

- No Refinancing of loans with an existing federal guaranty (e.g. a 7(a) loan or USDA loan).

- No refinancing of loans which is already part of an existing 504 project.

- No refinancing where the creditor on the debt to be refinanced is in a position to sustain a loss causing a shift to SBA or all or a portion of a potential loss from existing debt.

The Sacramento Loan Processing Center will begin accepting applications June 24, 2016.

We are very excited about the reinstatement of this program. Call us today to discuss potential projects that may be eligible for the 504 Debt Refinancing Program or to go over any questions you may have regarding this announcement.

Also, if you would like to schedule a bank presentation of those changes to the 504 Loan Program to your lending team, please let us know!

 

SBA Learning Center

The Small Business Administration Learning Center provides online courses, videos, chat sessions and other resources on a variety of topics of interest to small business owners and lenders.

Course topics available within the Learning Center include Financing, Government Contracting, Managing a Business, Marketing, and Starting a Business. Each course is generally 30 minutes and all course materials are offered in a PDF transcript or text based version that you are able to save to your computer.

To learn more about the SBA's Learning Center please click here.

 

SBA Life Insurance Requirements

Although obtaining life insurance on the primary business owner may be a credit issue, generally SBA requires some type of life insurance coverage on all SBA loans.

Credit decision aspects include:
-  Is the repayment of the loan depended upon an owner's active participation in the business? If yes, life insurance is required
-  Are there other sources of repayment or adequate collateral available? If yes, life insurance coverage may be waived or coverage can be less than the loan balance
-  If the owner dies and there is not adequate life insurance coverage, and there is a loan deficiency, SBA may repair / deny payment of the guaranty

The lender must:
-  Obtain a collateral assignment identifying the lender as an assignee with the assignment acknowledged by the home office of the insurer
-  Assure the borrower pays premiums on the policy
-  Have a copy of the life insurance policy
-  Include insurance requirement and amounts in credit memo and keep in file

If a lender makes the decision not to require life insurance, the file must be documented with the decision outlining why the lender does not believe life insurance is necessary and / or how the lesser amount was determined.

 

7(a) General Information

The SBA 7(a) loan program is the most basic and flexible SBA financing option for small businesses. Loan proceeds can be used for a number of uses including working capital, equipment purchases, and the refinance of eligible debt. The highlights of the program include but are not limited to the following:

-  Guaranty percentages are based on the loan amount. The SBA will guarantee up to 85% of a loan for $150,000.00 or less and up to 75% of a loan greater than $150,000.00

-  Interest rates are negotiated between the borrower and the lender but are subject to the SBA maximums, which are pegged by the Prime Rate.

-  Loan maturities are based on the ability to repay, the purpose of the loan proceeds, and the useful like of the assets financed.

-  To offset the costs of the SBA's loan programs to the taxpayer, the Agency charges lenders a guaranty fee and servicing fee for each loan approved and disbursed. The amount of the fee is based on the guaranty portion of the loan.

Wakarusa Valley Development will prepare and package 7(a) loan applications on behalf of your bank and customers and work directly with the SBA through the approval process. Once approved the participating lender will close, disperse and service the loan.

Put our experience and knowledge of the 7(a) program to work to help meet the needs of your customers while enhancing your lending opportunities!

 

Keep 504 In Mind

Despite the winter weather, there is nothing gloomy about the direction of the economy. As small businesses look at their options, keep the 504 Loan Program in mind. It is an outstanding product in the long-term stabilization of the economy.

Please do not hesitate to call us to brainstorm and discuss loan structure or see if a project may be eligible for the 504 Debt Refinancing Program. We love talking shop. As an added value we will be glad to meet with you and your customers early in the loan assessment process to explain the 504 program and answer any questions they may have.

 

Celebrating 30 Years of Servicing our Community

That's right! In 2016 Wakarusa Valley Development will celebrate 30 years of service. Our SBA loan programs and services have helped countless lenders provide credit to qualified borrowers while mitigating participating lender risk with the 504 and 7(a) loan programs. We have seen many changes in the lending landscape over the years, but one thing stands out above all others - We are still here servicing our local community.

As we move through our 30th year, our goals remain the same: to make your lending life easier through the SBA solutions and services we provide. Feel free to give us a call or send us an email. We love to hear your feedback, answer questions or discuss what we can do for your next client!

 

Small Business Saturday

Saturday November 28 is the Day to Shop Small!

Between Black Friday and Cyber Monday there is a day dedicated to supporting small businesses nationwide. Last year, over $14.3 billion were spent at small independent busiesses on Small Business Saturday.

Small businesses are the back bone of our communities. When we shop small we are not only getting great products and services, but we are supporting our neighbors and strengthening our local economies.

All over the country, small businesses are getting ready to welcome people into their stores on Small Business Saturday. Small businesses do so much for our communities, it's time for us to do our part! On November 28th, let's get out and shop small!

 

Visit Small Business Saturday's website to find out where to shop, promote your small business and rally for your community.

 

504 Interest Rates

20 Year Rates

November 4.51%
October 4.64%
September 4.38%

10 Year Rates

November 4.47%
September 4.15%
July 4.50%

* Interest rates may vary.

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