I knew these fees were coming, but I’ve had so much other information to share with you first. But now it’s time to talk about the FY23 fees for 7(a) loans as announced in SBA Information Notice 5000-836123. A hefty 7-page tome to be sure.
As we know, SBA adjusts these fees every year. SBA’s lending programs are supposed to have a “zero subsidy” and fees are estimates as to the amount sufficient to cover any losses in the program for the upcoming fiscal year. They’re not intended to cover administrative costs, which are part of SBA’s budget. Yet every now and then, Congress acts to modify the program subsequent to the annual fee adjustment.
When that happens, zero subsidy flies out the window and Congress must appropriate funds to cover these increases. But in goeneral, loans are covered by the fees they generate and the fees are set at the time of authorization, based on a percentage of the guaranteed portion of the loan. Once the loan is authorized, that percentage is fixed.
Now, things get complicated. If they weren’t already. Try to remember the days of September when an upfront fee of 2.77% of the guaranteed amount was applied to all 7(a) loans $350,000 – $700,000. That 2.77% will stick with a loan for the rest of its life. If the original amount of the loan was $375,000 and you want to increase it to $400,000, that’s very nice indeed. Is there a catch? Yep. There will be a fee of 2.77% on the amount of the increase even though there is no upfront fee on loans of $500,000 or less. Stick with me, lender, I’m the loan fee you came in with.
Continuing with the unpleasant subject of fees, remember that the increased fee must be paid within 30 days of SBA approval or the whole guaranty gets cancelled. Oh, and say you start disbursing the loan and the borrower says “Enough for a lark! I don’t need the increased funds after all.” Terrific. You cancel the increase but you still owe the upfront fee on the amount of the increase.
If your loan was authorized between December 27, 2020 and September 30, 2021 there’s no need to worry about increased fees because fees for loans authorized during that time were dictated by The Economic Aid Act 9 (See SBA (Information Notice 5000-20084 which expired on September 30, 2021. So if you want to increase your 7(a) loan, you have to submit a brand new loan application.
And more to come. There is much more information in this Notice: What to do when two or more 7(a) loans (with maturities exceeding 12 months) made to an applicant (including its affiliates) are approved within 90 days of each other; the prohibition on fee splitting; fees for Extensions of Short-Term 7(a) Loans, and other exciting topics. We have weeks and weeks to talk about them. I won’t forget because of course I’ve got a little list. Stick with me lenders. I’m the Fee Guru you came in with.