Tonight we are back to our SBA discussions. After reading a piece today in the paper there may be another reason why the amount of SBA Loans is decreasing. We actually saw an example of this today with a closing that we just had., but more about this in a minute.
Reason Number Six if you are counting, the SBA Guarantee Fee.
Before I can explain why this is an issue I will first explain what it is. Every loan that a bank issues that is SBA approved is guaranteed by the SBA. The price of that guarantee by the SBA is the Guarantee Fee. The way the SBA Guarantee Fee works is as follows. The SBA charges a certain percent of the loan amount borrowed reduced by 25%, For example a $300,000 loan guarantee fee is based on a $225,000 amount. and that amount is multiplied by a percentage point varying between 2 .0 to 3.0 percent depending on the size of the loan guaranteed.
What this guarantee does is to protect the lender in the event of a default by the borrower. So here's the issue. What I found out today is that if the bank does not dot all their (I')s and cross all their (T)'s perfectly, the SBA guarantee will not pay. Therefore the bank would not be able to recapture their loss.
Its no wonder the lenders are concerned about doing SBA Loans. If you knew that you had no guarantee that the SBA would pay in the event of a default would you do new loans? So back to today's' experience.
We had a closing today that the lender told us the docs would be ready two days ago. It took them over two full days to review the docs after the loan was fully approved and the docs were drawn. It's almost like they were afraid to release the docs. So please advise all your clients that the doc signing dates will be later than what is expected. The reason for this is the bank is reviewing the loan docs, then re-reviewing the docs and then finally having a final review of the docs before they are released.
Now we will see how fast they fund as they have to review the docs again now that the client has signed them all. Stay tuned as we undoubtedly will find reason number seven why the SBA Lenders may not be coming back.
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