The Small Business Administration’s Paycheck Protection Program was immensely popular in 2020, so it was little surprise that its return dominated headlines when the federal government passed the Consolidated Appropriations Act late last year. The focus on PPP overshadowed several changes that were implemented to the SBA’s 7a loan program, which had been the agency’s primary source of small business assistance before 2020.
“I think there was a lot that went into that bill and PPP round 2 gets a lot of attention,” said Jordan Hallam, the FVP/ SBA Relationship Manager for South State Bank. “There were enhancements to the 7(a) program and it does seem like those, they didn’t seem to garner as much attention in the news.”
Tampa Bay lenders are working to get the word out on the 7(a) loans, which underwent a few significant changes to make them even more enticing to borrowers and lenders. The SBA will now guarantee up to 90 percent of the loan, making it easier for lenders to approve the 7(a) loans. For the benefit of borrowers, the government will cover up to three months of principal and interest payments on the loan — up to $9000 per month — and guarantee fees have been waived.
“The SBA guarantee fee is completely waived, and if you know anything about the loans, that is the largest of the closing costs associated with closing an SBA loan,” said Kevin Gilligan, the VP, SBA director for the Bank of Tampa.
Tom Zernick, the president of First Home Bank’s SBA lending division, CreditBench advocated for several of the changes. Zernick testified before Congress remotely in December, calling on the federal government to “bring a vaccine to Main Street.”
The updated 7(a) program launched back on Feb. 1 and is set to expire at the end of September, but Zernick said he isn’t sure if the government’s money for covering fees will last that long.
“I would bet that there are limited appropriations for the program, and I would estimate it not making it to expiration date,” he said. “There is a sense of urgency here.”
That said, lenders stressed that small businesses should not apply just for the sake of applying. Borrowers should first ensure that they meet the size standards to qualify for a 7(a) loan, which vary from industry to industry, although Zernick said that “99% of the businesses on Main Street” would qualify for the program.
Hallam said that a business needs to have a specific reason for seeking out a 7(a) loan.
“It could be to acquire a building, or buy another business, or buy out partner, purchase equipment, or consolidate debt,” he said.
The first step for small business owners interested in the program would be to talk to their bank, said Janet Plummer, a SBA loan specialist at First Citrus Bank.
“Whoever you bank with as small business owner, try to talk to them,” she said. “You need to start talking early. I want to look at their business plan and give them some feedback before they spend a lot of time on it — this is what you need to do, or tie it into business plan, etc.”
Hallam added that, if possible, borrower should seek out a bank that is an SBA preferred lender, or a PLP. Preferred lenders can approve the loans internally rather than sending them to the SBA, which makes the process much faster.
Despite remaining in the shadow of the PPP, the 7(a) program is hardly unpopular. All the lenders who spoke with the Tampa Bay Business Journal said SBA loan production was up from last year, and the program is being utilized in Tampa Bay even if it is down nationally. The lenders said they were all reaching out to small businesses to make sure they were aware of the program, while some offered additional incentives.
“We came out with an initiative where we are paying all closing costs for businesses who borrow under this in our five county area of Pasco, Pinellas, Hillsborough, Manatee and Sarasota,” Zernick said. “If there is an appraisal, we are eating all of those hard costs… it’s simply the best loan in town.”
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