The Small Business Lending Enhancement Act of 1995
The cost of doing business with the SBA went up after Congress slashed the agency's 1996 budget by thirty-five percent. Among the new law's provisions are the following: 1. The upfront guarantee paid to the SBA by the bank (but typically passed on to the borrower) would remain at 2% of loans of $100,000.00 or less. On loans of more than $100,000.00, the guarantee will be computed on a sliding scale of 3% of the first $250,000.00, 3.5% of the next $250,000.00, and 3.875% of the remaining guarantee amount. 2. Banks will pay the SBA a new 0.5% annual fee on the amount of the outstanding balance of the guaranteed portion of the loan. While banks may not charge the fee directly to the borrower, they may boost the loan rate to offset the fee payment. 3. The percentage of a bank loan that the SBA guarantees to repay upon default has been lowered. For loans of $100,000.00 and under, the maximum guarantee drops to 80% from 90%. For loans over $100,000.00 the SBA guarantee drops to 75%. 4. The guarantee cap of $400,000.00 that was imposed during the second half of fiscal 1995 has been removed. SBA guarantees can now be as high as $750,000.00 which could result in loans of $1,000,000.00 or more. 5. The moratorium on debt refinancing, also imposed during fiscal 1995, has been removed.
