Back to the Business of 7a Lending
We’re all wondering: When will life return to pre-COVID? Will we return to pre-COVID? What will that even look like?
Mostly, we just don’t know. What we do know is that SBA has provided SBA Lenders with tools and guidance to help them do their part to get there. So as Round 2 of the PPP loans continues, let’s look at what 7a Lenders have to do to move forward.
To start with, SBA has made temporary changes to the SBA 7a and Express programs, as discussed in Notice 5000-20084 issued 1/27/2021. These changes are:
Effective 12/27/2020 through 9/30/2021:
Standard 7a, Small 7a, CAPlines, PLP, and Community Advantage loans will carry a 90% guaranty.
* While the guaranty has increased to 90% on standard 7a loans, the maximum SBA
portion remains $3,750,000. Therefore, the guaranty fee must be adjusted for loans
above $4,166,666. The Lender should divide $3,750,000 by the loan amount to get
the guaranty percentage. For example, $3,750,000 / $4,250,000 = 88.23% guaranty.
2. Guaranty percentages will automatically revert to previous levels on October 1, 2021.
3. SBA Express retains its maximum loan amount of up to $1,000,000.
* This will permanently change to $500,000 on October 1, 2021.
4. SBA Express loans of $350,000 or less will carry a maximum 75% guaranty. For loans greater than $350,000, the maximum percentage remains at 50%.
* On October 1, 2021, the maximum guaranty will automatically revert to 50%.
5. Guaranty fees will be reduced to zero until no longer offset by appropriations.
6. Ongoing Lender Annual Service fees will be reduced to zero until no longer offset by
They have also made available a checklist of COVID-related questions to consider when underwriting your new 7a and Express loans. Notice 5000-20042 was issued 8/7/2020, with updated guidance issued in Notice 5000-20071 as of 12/16/2020. Some of the key questions are:
Does the applicant have other loans (PPP, EIDL, or other stimulus funding) with contingent repayment requirements that could impact cash flow? If so, Lenders need to address the status of the loans, including cash flow analysis if terms are not met or forgiven, and the impact of these loans on the 7a lien position.
Loans should be underwritten based on cash flow rather than available collateral or outside sources of cash.
How is the Borrower’s industry and business impacted by COVID? Is there an impact on revenue, staffing, supply chains, etc.? Does the Borrower have a plan for returning to normal operations?
What other COVID-related impacts has or will the Borrower experience, such as travel restrictions, social distancing, PPP Costs, repairs, cleaning, safety materials, etc.?
Is the historical financial information reliable based on the current market?
Are the Borrower’s business and vendors concentrated or diversified? How does COVID contribute to this?
What impact do current market conditions have on collateral?
If 50% or more of proceeds will be used for working capital, Lender should address why this level of working capital is necessary and appropriate for the Borrower in light of COVID.
By bringing your team up to date on these tools, you’ll ensure that you’ll move forward with 7a lending in a prudent manner and in compliance with the most recent SBA guidance.
Can we help? Call us! We're available to assist you through these changes so you can get back to the business of SBA lending with confidence. You can reach us at 877.576.0819, or through the Contact Us form on our website at https://www.lrmlenderconsultants.com/contact-us.