The Evergreen Edge Newsletter

President Obama signed the U.S. Department of Defense (DOD) appropriations bill on Saturday. It included $125 million to continue the enhancements made possible through the American Recovery and Reinvestment Act (ARRA) to SBA's 7(a) and 504 loan programs. The SBA estimates the additional funding will support $4.5 billion in small business lending.

New approvals of loans with the 504 first mortgage lender fee and the CDC loan processing fee paid for by the ARRA are expected to begin by Dec. 28. Loan applications from borrowers who chose to be placed in the SBA's Recovery Loan Queue will be approved by SBA first, followed by new loan approvals beginning on or before Dec. 28.

The fee relief is authorized until this additional funding is exhausted or the end of the fiscal year (September 30, 2010), whichever comes first. As was the case in November, SBA will transition into a queue system as the funds start to wind down in order to ensure the maximum stimulative effect of the programs and disbursement of funds.

This extension does not provide a retroactive guarantee or waived fees for non-ARRA 504 loans approved by SBA during the transition period. Loans that were approved under non-ARRA terms cannot be canceled and resubmitted to take advantage of the ARRA extension provisions.

Once Congress returns to Washington for the start of the next session in January, attention will turn to the Commerce - Justice appropriations bill, H. R. 2847, which is also known as the Jobs Bill. This legislation contains an additional $354 million for fee offsets for the two SBA loan programs. It has passed both the House and the Senate, and now must be "conferenced" by the Appropriations Committees. We expect this to occur in January or early February, and hope that this bill would be passed in final form before the funds from the DOD spending bill run out.

Evergreen Business Capital will keep you informed of any further actions regarding funding of these fees.

The October 30, 2009 Federal Register contained a notice on the interim final rule for the first mortgage secondary pool for the 504 program. Contact your Evergreen Loan Officer to find out what you need to do to assure your 504 first mortgage is eligible for sale in the Secondary Market. For those looking for details, SBA has since released a first mortgage lender guide:

• Federal Register Notice on Interim Final Rule for ARRA 504 Secondary Market
• SBA First Lien Position 504 Loan Pooling Program Guide

On November 18, 2009, SBA Administrator Karen Mills and Treasury Secretary, Timothy Geithner, hosted a forum of one hundred leaders of financial institutions, trade associations, small business owners, key government agencies, and Members of Congress at the request of President's Obama. The goal was to make concrete recommendations on ways to improve small business access to capital. NADCO was represented by Jean Wojtowicz, chair of the NADCO board, Kurt Chilcott, CDC Small Business Finance, and former chair of the board, Charles Cleary, Self-Help Ventures Fund of NC, and Chris Crawford, NADCO President. Jean participated in a lender panel and made the following points:

• Bank participation in the 504 program is key to successful delivery of the 504 program. The nationwide average is under 30% of banks that participate in the 504 and 7(a) programs. The SBA should work with the American Bankers Association to increase participation.
• The 504 program has been operating at no cost to taxpayers since 1997. It is a very effective job creation program and could do more if the program were opened up further. This would provide significant additional assistance to small business at no cost to the government.
• NADCO's economic impact study indicated that for every dollar spent to administer the 504 program, the government receives over $94 in taxes - an astonishing return on investment.
• A study by Credit Suisse indicates a coming crisis in maturities of numerous smaller commercial real estate loans. If restrictions on 504 financing are temporarily lifted by Congress, 504 can assist thousands of small businesses that will soon face this refinancing crisis for the existing debt on their business properties.
• There is a strong need to increase the loan limits so that more borrowers who have existing 504 loans, but are "maxed out" on the program, can utilize 504 again to expand their businesses. These firms can be among the highest job-creating companies.
• If Congress responds to the President's request and increases the loan limits for 504, there must be a corresponding increase in size standards to avoid over leveraging these borrowers seeking larger loans.

There were also a series of working sessions where all attendees contributed ideas on increasing access to capital. NADCO participants provided the following recommendations to be included in the proceedings forwarded to the President and Congress:

• Increasing loan limits to $5 million ($5.5 million for manufacturing) should be passed quickly by Congress and SBA must change the borrower size standards to match this increase in loan limits.
• The personal resources and credit elsewhere tests should be eliminated for 504 since it is an economic development, job creation program.
• Congress should appropriate funds to continue the ARRA fee reductions for 504.
• Bank regulators should provide regulatory and capital requirements relief for banks that are using the SBA guarantee programs to reduce risk in their portfolios.
• Congress should temporarily expand the refinancing capability for 504 to help address the coming commercial real estate maturity bubble.
• The 504 first mortgage secondary market must be expanded to provide liquidity for community banks.
• SBA must streamline its regulations on 504 and regulatory oversight for CDCs to more effectively address the long term financing needs of small businesses in the future.
• SBA must shift more of its loan liquidation and recovery efforts from the two loan servicing centers to CDCs across the country. This change will result in higher collections and lower loan losses for 504. SBA must obtain funding to cover the collection costs of these efforts.
• TALF must be continued and SBA loans must continue to be eligible collateral for loans in order to provide for investor liquidity.

The forum was streamed live on the WhiteHouse.gov website and the video can now be viewed on the Treasury's website: www.yorkmedia.com/treasury/webcasts2009.html.

Most of the above suggestions have already been provided to both Congressional Small Business Committees, however, NADCO continues to push for these program changes to enable 504 to be more beneficial during this credit crisis and recession.