Right after I opened SBA Information Notice – 5000-836380 – 504 Fees Effective During Fiscal Year 2023, I thought that CDCs might be concerned that the FY23 504 fee hikes would negatively affect the program and their operations. I got some calls, but nothing amounting to Henny Penny in the Aesop fable, scurrying about, warning everybody that the sky was falling. Indeed, no SBA Foxy Loxy will be eating us up in fees. It’s gonna be OK. I’ll explain.
Why these fees? Every year SBA establishes the fees on the 7(a)* and 504 loan programs. That’s because these programs are “zero subsidy” programs. While the federal budget includes Administrative costs, tax money isn’t used to cover loan losses. Instead, potential losses are covered by fees paid by the program users (lenders and borrowers), based on both historical and projected program performance. I’m sure you’ve heard many discussions at SBA conferences about the subsidy rate. That’s what this is all about.
Not to worry. The sky is still up there and likely to remain so. Information Notice 5000-836380 details 504 fees for the upcoming fiscal year. At first glance, the numbers seem overwhelming. Yet let me boil it all down for you:
Effective for 504 loans authorized after 9/30/2022:
- The one-time upfront SBA Guaranty Fee that is priced as an Administrative Cost in the Debenture will be 0 basis points for both regular 504 Loans and Debt Refinance Without Expansion 504 loans.
- The Ongoing SBA Guaranty Fee will be:
- 05 basis points for regular 504 loans, an increase over FY22 of 24.75 bps;
- 59 basis points for Debt Refinance Without Expansion, an increase over FY22 of 19.69 bps
The significant increases in the Ongoing SBA Guaranty Fees are what got some people concerned. But hold on. We’ve been through a rough and tumble time, and accommodations were made. Changes for FY23 look substantial only because these fees were significantly low in FY22.
For comparison, fees in FY21 were higher than the fees established for FY23: In FY21 the SBA Guaranty Fee was 0.5%, higher than the 0.0% for FY23. And the Ongoing SBA Guaranty Fee was 45.17 bps vs. 44.05 bps for FY23.
So what seems like a huge jump is really just SBA getting back to business as usual. Be assured, the sun will rise and the rooster will crow at dawn.