Let’s face it – the world has generally appeared to be awful for the past 10 months.  The unemployment rate is climbing, many restaurants and other businesses have shuttered their windows and doors and there is, in general, a struggle for kindness.

However, within the franchise space, some brands, some business models have flourished.  Some concepts are seeing double digit Year-over-Year sales growth.  Are there new protocols to stay safe?  Yes, but that doesn’t mean that business can’t happen.

One significant consideration when evaluating starting a business (whether it be on your own or with a franchise) is getting funding and then paying for it while still in the start up phase.  It has stopped some that were on the path to business ownership – that fear of not being able to pay the business bills and potentially facing failure.  So – let’s have this be not only a Good News post but a Great News post!  The stimulus bill, where many only hear of the loans for existing businesses (PPP, EIDL) also includes some amazing benefits for new business start ups.

Here is a summary:

Applies to new loans

  • Loans approved between February 1st, 2021 and September 30th, 2021
  • Three months of payment relief (capped at $9k a month)
**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 help you:

    • Increase to the guarantee % to the banks

The SBA has increased the guarantee % from 75% to 90% for the banks

** An SBA guarantee (or guaranty) means that the SBA is responsible for repaying part of your loan if you default.  As noted, the standard guarantee is 75%, raised to 90%, equating to less risk for banks to take a chance on you.
** 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 during 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. The rate increases as the loan amount increases.
** This fee is the responsibility of the borrower and something that is collected as a closing cost.  It is similar to an origination fee for a mortgage.

 An example of how this impacts your cost 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

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&I 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…a new borrower saves over $30k under this lending landscape

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