NORTH BAY -- This morning, the Senate passed HR 5297, the small business lending bill that once made into law will greatly increase the reach of Small Business Administration loans.

The bill still needs to be ratified and to go to the president, but, said Michael Rice, senior vice president of small business lending at Circle Bank, the expectation is that it will be law by next Friday.

The bill creates a $30 billion lending fund for community banks.

The bill would extend the fee reductions for SBA 7(a) and 504 loans and increase the guarantee to 90 percent through Dec. 31, or until $505 million in appropriations has been contracted.

There will be a permanent increase to the size of the loans, $5 million for both 7(a) and 504, and a temporary increase of $1 million for express loans.

“The impact this will have on small businesses in Northern California gaining access to capital is significant. This bill is also a huge boost for community banks who participate in the SBA 7(a) and 504 program,” said Mr. Rice

Also in the bill is an alternative size standard for businesses, which establishes a standard of maximum tangible net worth of $15 million and 2-year average net income after Federal income tax of $5 million. This applies to both 7(a) and 504 loans.

For business owners in need of debt refinancing, this will establish a temporary 2-year program of business debt refinancing through the 504 program independent of the usually required job creation/preservation project.

Mark Quinn, district director of the SBA in San Francisco, said a lot of short-term debt is coming up, and this will be a way to take out the short-term financing.

 “This bill has been talked about for a couple of years,” said Sherrill Stockton, head of the small business lending department at Exchange Bank in Santa Rosa.

“It has been a long torturous ride. It has passed both the house and the senate, but it needs some reconciliation,” she said.

This is all partly an extension of the recovery act incentives that were rolled out early in 2009. At the time, the recovery act allotted $730 million to the SBA to go toward five programs, with the temporary fee eliminations and the increase of guarantee limits from 75 percent to 90 percent being the main boons for lenders and borrowers. The fund would run out of money and another chunk of money would be set aside, extending the program for a short time.

“This will also have an effect on hiring,” said Mr. Rice. “It gives us a clear path on regulation for a few years that is certain, and we can expand our business accordingly.”

Michael Downey is the vice president of business services at Redwood Credit Union and said all SBA lenders are excited about this.

“It is good for our members and the community. It is a win-win situation.” He said RCU has a number of borrowers just waiting around for this to pass.

Mr. Rice also said there are a number of borrowers waiting for this with Circle Bank.

“After the last bill expired in June, a lot of businesses have wanted to wait until this bill passes. There is a pent-up demand for clients who would rather wait and see. We have a lot of clients waiting,” he said.

In addition to borrowers who are waiting, there are 1,000 loans already in the cue, said Mr. Quinn. That is, 1,000 loans that have been approved by the SBA are waiting for this bill to pass.

“My understanding is that it will be sooner rather than later,” he said, “within the next week. Congress goes out of session in a couple of weeks, and it will be before that that the bill will be signed.”

“For those community lenders that have been unable to lend, this should be a big piece of legislation,” he said.

Mr. Downey also noted that the reduction of fees and the 90 percent guarantee are two things in the bill that make a huge difference.

“The 90 percent gives lenders extra assurance and a measure of comfort and is good for lending overall. Larger projects will be financed.”

In addition to this SBA stimulus bill, said Mr. Rice, the SBA has just released a new standard operation procedure effective Oct. 1 that opens up SBA eligibility to several more businesses that had not been eligible for SBA financing.  

“For example, some ‘passive’ businesses are now eligible for SBA not formerly eligible. That would include storage facilities and equipment rental companies, which have had a difficult time obtaining capital after the commercial mortgage backed securities market collapsed in 2009,” he said.