The recently signed second stimulus package includes several provisions that should make it easier than ever for qualified buyers to access capital through the Small Business Administration (SBA) for starting a new business. We spoke with our friends at Benetrends Financial regarding the details of the new package and the impact it will have on entrepreneurs considering owning a business.
Eric Schechterman, Chief Development Officer at Benetrends Financial, said, “While the lending environment continues to rebound and lenders continue to adapt what they are looking for from borrowers these provisions should have a huge impact in 2021.”
Not to be confused with specific Paycheck Protection Program (PPP) loan details, here is the information buyers need to know about enhanced borrowing opportunities with the SBA:
For New Loans
The second stimulus package includes a provision for new loans approved between Feb. 1 – Sep. 30, 2021, allowing for up to six months of payment relief, capped at $9K per month. It should be noted that, after the initial rollout from the first stimulus package, the SBA changed “approved” to “funded,” which could affect different stages for different borrowers. As a reminder, any payments the SBA makes on behalf of the borrower are considered non-taxable income.
An Increased Guarantee Amount
The second stimulus package includes a provision for the SBA to increase the guaranteed percentage to banks from 75% to 90%. This increase should have a stimulating effect on lenders, possibly bringing more banks into new business loans, especially those who sat out most of 2020. It should be noted that this doesn’t increase options for lower qualified buyers—just additional options for qualified loan applicants and more industries that had seen limited lenders last year.
From now through Sep. 30, 2021, all SBA guarantee fees are waived for 7(a) loans. Previously, the SBA guarantee fee ranged from 2-3.75% of the guaranteed amount of the loan (not the total loan amount). This fee is the borrower’s responsibility, collected as a closing cost. To show an example that expresses the value of this new benefit, consider these hypothetical terms:
On a loan amount of $350,000, the guaranteed portion of the loan, based on the new 90% guarantee, would be $315,000—and a 3% guarantee fee on the $315,000 would end up costing the borrower $9,450—which is now totally waived!
Taking things a step further, let’s apply the same numbers as above and assume the P&I payments are approximately $3,500 a month. Combining the savings on the guarantee fee waiver AND the six months of P&I payments, a new borrower would save over $30,000 under these new provisions.
When you consider the benefits included in the second stimulus package, the lending landscape for the next six months certainly looks like fertile ground for qualified buyers who want to start a new business. It could be quite a convincing point to explain exactly how these initiatives might make 2021 an advantageous year to become a business owner through franchising. Start the conversation with one of our local franchise consultants today!
About Benetrends Financial
Benetrends Financial helps entrepreneurs successfully launch their dreams by offering a full suite of funding options including ROBS/401(k)/IRA business funding, SBA loans, equipment leasing, securities-backed lines of credit, and more. Learn more at benetrends.com.