Massive Changes to the SBA 7a loan program in 2023

if you're getting ready to apply for an SBA 7A loan to start grow or acquire a small business you're going to want to watch this video because the SBA has introduced sweeping changes to their main small business loan program the 7A now some of these changes are good some of these changes are bad but as always I'm going to peel back the curtain and reveal what's actually going on in the world of small business lending hey I'm re Drew an actual SBA lender and in this video I'm going to highlight the eight biggest changes to the SBA 7A loan program and stick around to the end because I'm going to share one massive change you probably haven't heard of but it's an absolute Game Changer so back in May the SBA put out what's called a procedural notice which went into immediate effect and that was our first taste of these new SBA guidelines the notice was so abrupt and unclear that half of the SBA lending Community essentially ignored them and just went on with business as usual as you can imagine this created a lot of confusion because if you're a small business business owner you're looking to get an SBA loan now you're being told all these different things from all these different lenders and no one really had any idea what was going on but wait it gets better a couple days later SBA dropped an entire new sop which went into effect August 1st 20123 the SOP for us it's like our Bible it's the rules of the road it's not all black and white but for us SBA lenders that have been doing this a long time you become familiar with how to navigate the gray only problem is the whole damn thing was gray there was contradictions within the document and we were left with more questions than answers so July comes along and the SBA tells us they're going to fix it by issuing a technical update prior to that new sop going into effect on August 1st well that didn't happen so for the last 3 months SBA lenders have just been winging it again creating a lot of confusion and uncertainty for small business owners well folks the day we've all been waiting for is finally here our prayers have been answered on October 24th the SBA issued a brand new sop yes another sop and it goes into effect November 15th 2023 now this is all a lot to keep track of even if you're immersed in it every day like I am but that's why I'm here to break it all down and tell you what's really important massive change number one Equity injection the SBA has removed all their minimum Equity injection requirements except for with change of ownership transactions so whether you're starting a business buying real estate for your business opening a second location the SBA is not mandating that you bring any cash to the table but don't get too excited just because the SBA doesn't require it doesn't mean your bank won't now when it comes to a complete change of ownership in other words a business acquisition where you're going to acquire 100% of a business whether stock purchase or asset purchase the SBA does require a minimum Equity injection and it's 10% and that's been the case only now the rules are a bit more flexible with what can count towards that 10% yeah bringing cash is still an option but so is seller financing in fact the entire 10% can theoretically come from seller financing if that seller notes is on Full standby for 24 months meaning no payments being made for that first 2-year period followed by a fully advertising term so like a 5 7 10e term after the 2-year standby now does this mean folks can go out and buy businesses with no money probably not it's going to be up to the bank and most banks are going to want to see some skin in the game however there are a couple examples where I think this does make sense for a lender like myself to do a deal with no cash from a buyer and one is when the manager of the business is buying the business we love these types of transactions these people know the business inside and out they have The Sweat Equity they just don't always have the cash cuz they've been a W2 employee for the last decade or whatever so this is a great example of how the new sop will allow more folks to access the American dream another example where I'm making loans to buyers with no cash injection is in the Strategic acquisition space let's say you own a business and you want to buy a related business but it's not an identical business so it doesn't qualify under expansion in those cases we can structure 90% SBA and 10% seller note if it's on standby for 24 months now I could do a whole another video on Equity injection but I'm going to keep it high level for now but the headline is new sop more flexible equity injection guidelines more access to Capital massive change number two partial change of ownerships for decades the sba7a loan could only finance two kinds of change of ownership transactions a partner buyout and a complete change of ownership now buyers can buy part of a business when this originally came out in May everyone got really excited at the idea of a partial change of ownership because it introduces more flexibility to the program but then members of the SBA lending Community along with the trade organiz ation they said wait a minute isn't there a rule where if anyone's owned 20% or more of the business in the last 6 months that person has to personally guarantee the loan so even though the new sop stated for these partial change of ownerships it's based on the post sale ownership percentages so if the seller goes below 20 we're going to base it off that and not have the seller guarantee essentially but then there's also the six-month look back rule where it's saying the opposite so the fact that these two parts of the SOP contradicted themselves it left most SBA lenders taking the more conservative approach and requiring the seller's personal guarantee in these partial change of ownership transactions even when they drop below 20 after the sale and no seller wants to do that so it kind of rendered the idea of a partial change of ownership under SBA dead until the SBA came out and clarified verbally that no we meant this to be for the Post sale percentages and anyway now we finally fin have the written guidance so now it's clear and I think just about everyone in the SBA lending space now will be of the mindset that if a seller is selling part of their business and they're going to retain less than 20% post close they don't need to personally guarantee the loan massive change number three do what you do while you won't find this phrase in the SOP it's how the SBA is describing their new philosophy which is to let the SBA lenders use their conventional lending policies to dictate their SBA loan policies hence the phrase do what you do SBA lending has always been a little different lender to lender but now with the SBA stripping out so many of their guidelines and replacing it with this do what you do language those differences are going to be Amplified so when you go get an SBA loan just know this is not a cookie cutter Loan program every lender is going to be doing different things massive change number four overhaul of the SBA approval process for years if we approve the loan as a preferred lend lender there were no additional approvals needed it was completely streamlined compared to non-preferred lenders who had to underwrite and approve the loan and then send the package to the SBA to underwrite and approve the loan so everyone just worked with preferred lenders to avoid all that but now when a preferred lender inputs the borrower information into the SBA system the SBA is actually going in and running checks against both internal and external databases and it's causing delays because this is a new system and The Kinks are still being worked out but so far lenders are not big fans of this new process and neither are our borrowers massive change number five expansion of the SBA small loan program under the 7A program SBA delineates between standard loan and small loan one of the top three initiatives of the SBA is to do more small dollar loans and so they've been making it easier and easier to make these small loans because SBA lenders Banks historically they've avoided them because because they take too much work and they're smaller so they make less money and they couldn't figure out how to do a profitable small loan program so SBA introduced more streamlining of these small loans and they increased what they consider a small loan from 350,000 to $500,000 which that's huge and we're already seeing more lenders enter the small loan arena and I think this one is a huge win massive change number six Blended terms so when the SBA puts out a new o it's not just what's in the new sop it's also what isn't in the new sop and when they issued this new sop they removed a part that allowed us to make 25-year terms when at least 51% of the project was going towards real estate and so for the last few months if there was real estate but also other things in the loan we had to blend the term down to like a 15-year term or something like that and that meant a higher payment for the small business owner but thankfully with the new version of the SOP this language is back and and borrowers can once again get 25-year terms for multi-use projects where the real estate represents at least 51% of the proceeds massive change number seven construction bonds the new version of the SOP also brought back the ability for a lender to use funds control instead of requiring that the GC get bonded which is super expensive so starting on August 1 if a small business wanted to borrow $100,000 to do a simple buildout their GC needed to get a bond which is so ridiculous that the SBA started passing out waivers for this rule but you had to a know you can get a waiver and then B get them on each deal and so this new version of the SOP fixes that issue massive change number eight fee relief the SBA is offering fee relief in fiscal year 2024 this is great news but only if you're borrowing 2 million or less under1 million there's no fee that's from October 2023 to the end of September 2024 so on a $1 million loan that's a savings of 26 Grand and on loans over a million up to 2 million the fees is cut in half and then loans over 2 million well you're out of luck clearly the SBA is trying to incentivize the small dollar loans now for the Hidden Gem so this last one is something that not a lot of people are talking about but it's actually a huge huge thing that has changed and that is the affiliation rules affiliation is a term we use in SBA to determine if two entities are related to one another and if we have to kind of combine them and count them sort of together in the same bucket and this comes into play with your $5 million cap that the SBA has the maximum loan for an SBA 781 is 5 million so if you own a business and it has a loan of 5 million from the SBA and you try to go get another SBA loan on your other business well historically if you were controlling you know and operating both businesses you couldn't do that because they were Affiliated it was based on control now the SB has actually put really specific guidelines in place to determine if those business are affiliated and it goes by ownership over 50% and sector so the first three digits of your nakes code and you have to hit both for those companies to be Affiliated so in this example where I own two businesses business a I own 51% of and business B I own 49% of well automatically those businesses are not affiliated because I don't own 51% of business B now let's say I own 51% of both businesses but one of them is a cookie manufacturer and the other is a construction company different sectors still not affiliated because the first three digits of the NES code I assume is going to be different so what does that mean well I haven't tested this out yet we're going to be soon but there's no reason why both of those business can't get a $5 million SBA loan cuz they're not affiliated now in the coming months as I get more more experience submitting loans through this new SV approval I'll be more confident in saying that because I want to actually see it cuz this is just so different than what I've been doing for my 12 13 years but stay tuned more to come so what do you think are these changes good bad it doesn't matter leave a comment down below

Channel: SBA Ray

Views: 11,769

Keywords: SBA guidelines, SBA lending, equity injection, change of ownership, SBA loan program, SBA lenders, SBA approval process, SBA small Loan program, blended terms, construction bonds, fee relief, affiliation rules, SBA loan, small business lending, Sba, sba7a, loans, small business, sales, business acquisitions, commercial real estate, sba 7a, sba 7a loans, business development, ray drew, sba ray, sba lending, mergers and acquisitions, M&A, Partner buyout, franchise, entrepreneur

Id: pnXyxTrQ-do

Length: 12min 19sec (739 seconds)

Published: Wed Nov 29 2023