Second Stimulus Reduces Lending Terms and Creates a Buyer’s market

The second stimulus package, which was recently signed into law, includes several provisions to make it easier for qualified buyers of small businesses to get capital from the Small Business Administration. We spoke to our friends from Benetrends Financial about the new package, and its impact on entrepreneurs who are considering starting a business.


New Loans

The second stimulus package contains a provision that allows for up to 6 months of payment relief. This is capped at $9,000 per month. After the initial launch of the first stimulus package the SBA changed the word “approved” into “funded”, which could have a different impact on different stages. Remember that any payments made by the SBA on behalf of a borrower will not be taxed.

Increased Guarantee Amount

The second stimulus package contains a provision that the SBA will increase the percentage guaranteed to banks from 75 to 90 percent. This increase will likely have a positive effect on banks, bringing in more new loans for businesses, especially from those that sat out the majority of 2020. This does not increase the options available to less qualified buyers. It only increases options for those who are qualified and for industries that were limited last year.

Fee Waivers

All SBA guarantee fees will be waived on 7(a), loans from now until September 30, 2021. The SBA guarantee fees ranged between 2-3.75% on the guaranteed amount (not the total amount) of the loan. The borrower is responsible for this fee, which will be collected at closing. Consider these hypothetical terms to illustrate the value of this benefit:

A loan of $350,000 would have a guaranteed amount of $315,000 based on a new 90% guarantee. The borrower would then be charged a 3% fee for the guarantee on that $315,000, which would cost them $9,450. This fee is now completely waived!

Let’s take things one step further and assume that the P&I payment is approximately $3,500 per month. The savings from the waiver of the guarantee fee AND the six-months’ worth of P&I payment would amount to over $30,000.

If you look at the benefits of the second stimulus package, it is clear that the lending environment for the next 6 months will be a fertile one for qualified buyers looking to start new businesses. This could be a very convincing argument to show how 2021 will be a good year for franchisees to start a new business. Contact one of our franchise consultants in your area today to start the conversation.