2 min read February 2021 —SEDCO is a not-for-profit certified development corporation licensed by the Small Business Administration to offer the SBA 504 loan program. In an interview with Invest:, President and CEO Brooke Mirenda shares insights into how the second PPP round differs from the preceding round, as well as her organization’s experience throughout the pandemic.
How has your use of technology evolved during the pandemic?
We’re all digital now, which is both good and bad. I certainly enjoy more personal interaction, however most of our meetings are virtual. Like most companies, we have had to transition our sales team and back office staff to operate remotely. We have also had to invest heavily in digital marketing, communications and further improvements to security.
How is the new round of Payment Protection Program (PPP) loans different from the first?
For the first round of PPP, if you had payroll then you were almost guaranteed to be approved. There was also an extraordinary amount of pressure to get funds in the hands of small business owners rapidly. Businesses were closing and laying off workers every day all around the United States. With the second round, also known as “second draw,” there are some eligibility factors that we must consider. A couple of the most important eligibility factors are that you must have 300 or fewer employees and have a 25% reduction in gross receipts from 2019 to 2020. This is either comparing corresponding quarters in each year or based on your annual financial statements. If a loan is approved and funds are disbursed in the second draw PPP and the company is deemed ineligible, it is likely that the lenders lose their guarantee and the business owner will not receive any forgiveness.
On the application for the second draw, it states that borrowers don’t have to supply the actual documentation of gross receipts, only numbers, if your loan is under $150,000. For a loan of $150,000 and above, you have to supply the gross receipt documentation to the lender but for loans of $150,000 and below, you don’t. However, as stated in the regulation, it’s the lender’s responsibility to get documentation when you’re ready to apply for forgiveness. As a prudent lender, SEDCO is asking for gross receipts up front to ensure that these loans will be forgiven regardless of loan amount. I have two objectives in doing PPP. First, I want to maximize the amount a borrower can qualify for and second, I want to ensure the borrower will be eligible for forgiveness, assuming they utilize the funds appropriately. Getting that official documentation is an important step.
How difficult has it been to keep up with demand as a lender?
It has been challenging. There are so many people applying for PPP loans that it’s simply impossible to have one-on-one conversations with each borrower about everything they need to know. I use social media as a way to get information out. The rules are also constantly changing and updating so information you were giving out one day could be different the next. The game is constantly changing, which has made it difficult for small business owners, let alone the lenders who are trying to support them and move deals quickly and efficiently across the finish line.
Will demand for SBA loans increase going forward?
Yes, I believe companies will look at SBA as a source of funding their business ventures due to the allowances our borrowers have received during the pandemic. There’s certainly an awareness of SBA that didn’t exist in years past due to the pandemic. All our borrowers in our existing portfolio have had six months of payments forgiven for them and more to come. With the new legislation that just passed at the end of the year, there are even more advantages for small business owners, including more robust refinancing options and temporary fee relief. Certified Development Companies (CDCs) around the country and our industry as a whole, are seeing record numbers of new applications.
In order to obtain an SBA 504 loan, you must have a CDC partner. It’s a two-part loan with a lender and a CDC/SBA where we finance fixed assets (commercial real estate, machinery and equipment). There are many advantages of SBA 504 financing. For a 504 loan, the standard down payment is 10%. CDC’s like SEDCO have an economic goal, with one of them being job creation. When you only have to put 10% down, you can utilize that additional capital to create jobs. For conventional financing, the standard down payment is 20% to 25% down and many of them balloon after so many years. With the SBA 504 loan, the rates are lower, fixed for the life of the loan and the terms are longer than conventional financing. There are very few disadvantages of going SBA. Of course, we want all the deals we can get, but at the same time we must maintain the integrity of the SBA 504 loan program and its intended purpose. Twenty years ago, people weren’t excited about SBA. It was what people considered a “necessary evil” to obtain the financing they needed. Now, it’s a sought-after loan program with business owners trying to get approved for SBA loans to take advantage of all the benefits they have to offer.
Would a rise in interest rates affect demand for the SBA loans?
We’re in a low interest rate environment but I don’t see rates going up a lot from here in the near future. There are enough benefits with this program that even if rates rise a percent or so, business owners would still want to participate in this loan program.
What are your main near-term priorities?
We’re really watching our portfolio and its performance. In the 504 loan program, we need to be cognizant of the fact that we’re lending SBA money, not ours. While we do have other lending programs, our primary focus is the SBA 504 loan. Additionally, with all the legislative changes, we envision our portfolio will continue to grow with additional program offerings like debt refinance. We are certainly geared up and prepared for growth. Growth is good but we also want to ensure we’re setting up our small businesses for success as they continue to be the driving economic force in the U.S. economy.
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