One of the reasons entrepreneurs choose to invest in a franchise rather than open an independent business is because franchise brands tend to offer corporate support, training and branding. If you are exploring opening a franchise, Small Business Administration (SBA) loans are a good choice for funding.
The stimulus bill was passed on December 22, 2020 bringing another round of PPP and EIDL loans. While the PPP portion of the newly signed stimulus package is important in our world, I know many are more focused on what impact it has on new lending. I thought I would share an update I received recently on the impact of stimulus lending on NEW loans for franchise buyers.
Here is a summary:
Applies to new loans
- For NEW loans approved between February 1st, 2021 and September 30th, 2021 there will be 3 months of payment relief (capped at $9k a month)
- This is based on the announcement from the SBA on February 16th, 2021. (reduced from the relief of 6 months previously communicated)
For a new 7(a) loan, 504 loan, or Microloan approved during the period beginning on February 1, 2021 and ending on September 30, 2021, SBA will make the Section 1112 payments for a 3-month period instead of a 6-month period, subject to the availability of funds.
**last time, the SBA changed “approved” to “funded” after the initial rollout (that could be very different stages for different borrowers)
**any payments the SBA makes on behalf of the borrower are considered non-taxable income
How the SBA is helping banks to help you
SBA increases guarantee % to the banks:
- The SBA has increased the guarantee % from 75% to 90% for the banks for qualified buyers.
- This should have a positive impact on the lending landscape and bring more banks into new business lending and get some banks that had been sitting out in most of 2020 back in the market.
- This DOES NOT mean more options for lower qualified buyers, just more options for qualified buyers and more industries that had seen limited lenders in 2020.
Fee waivers:
- From now through September 30th, 2021, SBA guarantee fees are waived on most standard loans.
- The SBA guarantee fee ranges from 2% to 3.75% of the guaranteed amount of the loan, not the total loan amount.
- This fee is the responsibility of the borrower and something that is collected as a closing cost.
- An example how this impacts your costs to borrow:
- On a $350k loan, the guaranteed portion of the loan based of the new 90% guarantee would be $315,000
- A 3% guarantee fee on the $315k would normally cost the borrower (YOU) $9,450
- That fee is now WAIVED
- And what does this mean for you?
- Plain and simple, it is cheaper to get lending now for a business than ever before
- Using the $350k example above:
- Assuming the P&L payments are $3,500 per month
- If you combine the savings on the guarantee fee waiver AND the 6 months of principal and interest payments, you save over $30k under this lending landscape
- An example how this impacts your costs to borrow:
REMINDERS:
- This DOES NOT change/loosen the criteria lenders are looking for.
- The PPP loans banks will be processing during Round 2 will likely have an impact on speed of lenders to review / approve new loan packages.
If you are considering business ownership and intend to take advantage of the 6 month payment relief, make sure you understand what it will take to get your loan closed promptly. I encourage you to schedule a free consultation with me if you are serious or even curious about getting into business for yourself, but NOT by yourself.
