The future of SBA 504 Loan Program fees

Financing can be complex. SBA 504 program fees will be a bit more complex for the next few months due to the start of a new fiscal year and the ending of the Recovery Act fee waiver. Evergreen Business Capital is here to make them simple. 

The American Recovery and Reinvestment Act of 2009 waived the borrower Processing Fee of 1.5% of the net 504 loan amount and the lender Participation Fee of 0.5% of the first mortgage amount through the end of the calendar year or until funds run out. It is projected that they will last through December and end in January, 2010.

The federal government begins its new fiscal year on October 1, 2009. The on-going SBA Guarantee Fee will increase from zero to 0.389%. This fee is included in the interest rate we quote and is included in the monthly payment the borrower makes on the 504 loan. Thus, all 504 loans authorized on or after October 1, 2009 will pay a slightly higher fee resulting in a slightly higher interest rate than those approved prior to that date.

One reason for the increase is that the SBA uses the nation's unemployment rate in the econometric subsidy model. The nation's unemployment rate has risen and indications are that it will continue to increase. Another factor is the use of forecasted loan default data in the model's calculations, which the SBA also expects to increase.

The Certified Development Company industry has communicated to Congress that this fee increase is counter-productive to the nation's recovery efforts as part of our ongoing conversation on how to improve the program.

Looking ahead,

Through September:

• The borrower's one-time CDC Processing Fee of 1.5% of the net 504 loan amount is waived by the ARRA.
• The borrower's ongoing SBA Guarantee Fee is 0.0%.
• The lender's one-time Participation Fee of 0.5% of the first mortgage amount is waived by the ARRA.

October through December:

• The borrower's one-time CDC Processing Fee of 1.5% of the net 504 loan amount is waived by the ARRA.
• The borrower's ongoing SBA Guarantee Fee is 0.389% and included in the effective rate for loans authorized after October 1, 2009.
• The lender's one-time Participation Fee of 0.5% of the first mortgage amount is waived by the ARRA.

January, 2010 through the fiscal year:

• The borrower's one-time CDC Processing Fee of 1.5% of the net 504 loan amount will likely return.
• The borrower's ongoing SBA Guarantee Fee is 0.389%, which became effective on October 1, 2009.
• The lender's one-time Participation Fee of 0.5% of the first mortgage amount will likely return.

All these fees are set at the time of loan authorization by the SBA. Businesses with current Authorizations will not have their fees change. Refer to this month's Q & A: The Finer Points of the 504 article for a more detailed description of the program fees or trust your local Evergreen Loan Officer to explain the fees and rates on any particular loan that is approved or funded.