Free Money! Could Your Loan Fees Be Waived?

The SBA released a notice on September 18th that could be a sign of help for small manufacturers.

In order to build our industrial base, the Trump administration is considering a one-year waiver incentives return that could reduce loan fees to zero when borrowing $950,000 or less. That could save a business owner thousands.

This episode will focus on the possible change and how we believe it may impact you. Be sure to like, share, and subscribe.

[00:00:00.00] - Alice

Hello. Welcome to Books in the Biz, a podcast that looks at both the financial and operational sides of success. Please welcome our hosts, Dan Paulson and Richard Beltré. Dan is the CEO of Envision Development International, and he works with leaders to increase sales and profits through great cultures with solid operations. Rich is CEO of the Veltre Group and a financial strategist working with companies to manage their money more effectively. Now on to the podcast.

[00:00:43.25] - Dan Paulson

Thank you, Alice, Welcome all back to Books and the Biz. Rich, how are you doing today?

[00:00:49.18] - Rich Veltre

I'm doing all right today. A little wet, but it's all good.

[00:00:53.22] - Dan Paulson

It's wet out there. Sun is shining out here. See, you're in the in the wrong part of the country. This is a nice sunny day. But hey, today we get to talk about free money or extra money, or however you want to look at it. Basically, you came across this story. I'm just going to share it here. The SBA posted this, looks like September 18th. And it sounds like they're going to waive loan fees for small manufacturers. What was What's your take on this, or what did you read into it?

[00:01:33.26] - Rich Veltre

Well, I think that it's consistent with what the government is basically willing to do for small businesses, because we know 98 % of all businesses in the United States are small businesses. And the SBA is a place where a lot of smaller businesses or smaller acquirers go to get government assistance to actually be able to acquire small More funding for equipment or whatever it might be, right? Yeah, it could be manufacturing. In certain cases, it could be for real estate, but usually it's real estate in support of an actual operation. But for most of the part, it's to buy a business that is actually functioning, to expand its ability to essentially grow it. The SBA itself is a very big resource for or search for searchers, people who are actually going out and saying, I just want to buy a business. That's what I want to do for my career. And people come out of school, and they could actually qualify sometimes with the SBA to acquire a business and instantly be a business owner. So what was interesting about the article was, I had not heard this until I saw the article, that they are for the next one year, starting next week, October first, they're waiving up to the fees, the upfront fees, up to $950,000 on 7A and 504 loans, which are manufacturing related loans.

[00:03:13.03] - Dan Paulson

So what is the 504 and the 7A? So you said the manufacturing loans, what do they classify as?

[00:03:24.01] - Rich Veltre

I think it's an SBA classification for what that loan is for. But again, it could be for equipment, it could be for working capital. But in my eyes, it's for the acquisition of those businesses. What's interesting is the SBA, one of the negatives of the SBA was always the upfront fee was 1-2% of the loan value. So you had to have that as a closing cost of acquiring the loan. And to take that away is a significant number, if you ask me, because your closing costs would be less, more money in your pocket to go ahead and be a success. And I think it's unheard of to hear zero %. I haven't heard zero %, and I don't know how long. Not on anything, not on credit cards, no credit card offers, nothing. It's just not usually out there where you would see zero % offering. I think that the significance is on both sides of both the acquirer and the acquiree. I think acquirees were getting worried because interest rates have gone up so much and have been high over the last few years, that I think acquirees were worried that there wasn't going to be someone who's going to buy their business.

[00:04:57.29] - Rich Veltre

And I think there was a struggle there where people who were actually, I think we may have even said it, there's eventually a point where there's not going to be an acquirer for your business if you're in that. If you've been planning all along for your business sale to be your retirement, it could be a worry at this point, because who's going to qualify at a higher interest rate to buy your business? And now it looks like that's become at least enough that somebody's seen it and said, let's make a policy that's going to help some of these people get get deals done. Because as we've talked about, we're in that, what they're calling the Silver Tsunami, right? We're talking about this great transfer of wealth, but there has to be financing for it, because somewhere along the line, someone needs to get cash. So it can't just be, oh, here you go. I'll just go and sit in the corner for the rest of my life. Now that I retired, there has to be a transfer of dollars so that people can actually do this. And the financing just wasn't really there. I mean, I think this really comes down to being consistent with everything that we've seen in the last six months plus.

[00:06:13.01] - Rich Veltre

Federal government is very bullish on tariffs and getting other people to pay for their fair share and bringing things back home to be manufactured here. So not really a surprise for me to see a drop in fees to try to help people move along with the manufacturing side of this, because that's what they've been working towards this entire time. They passed the big tax bill on July fourth. And a lot of the... There's a lot of people that are going to be mad at me for even bringing it. But when you look in the emotion of the law that came about, vast majority of what was being pushed has to do with supporting smaller businesses, bringing back the bonus depreciation, allowing a full write off of certain manufacturing facilities built over the next, I think, six years, and the depreciation being available, writing it off in the first year when normally commercial facilities Which is a big deal. Are 39 year property. You're taking 39 years of depreciation and pushing it to year one. That's an incentive and a half towards manufacturing. Is it enough? I don't know. We'll have to see. You got to be able to build a building or have the capacity.

[00:07:44.11] - Rich Veltre

And then that doesn't really get you started on building anything or making anything. But it is still a big government push to assist in getting things built here. Again, take away all of the, he did this and he did that, and who did this, and who did that, and how could they allow that? Everything is geared towards a very common goal, which is manufacturing in the United States, as opposed to overseas, and then shipping it in.

[00:08:16.28] - Dan Paulson

Here's some of my thoughts as I see this. I'll bring up the article again. Those who are watching can skim through it if they want. To me, I agree with you. This is a good thing. I think this is going to help in a number of ways. And we don't have a lot of information yet. So I think you and I can speculate as to how this might all work in. Because here's what I'm seeing. Is $950,000 a good chunk of money? By all means, yes, it is. And what if your business is worth five $5 million, because that's typically the cap that you're going to get for an SBA loan. Well, you're really talking about one-fifth of that. Is this going to be something that for that first 950,000, you'll pay zero %, and then the remaining 4,050,000, you're going to have to pay some % on that one to two %? I don't think either one of us know that, but I mean, what's your speculation on that? Is this something that, like some tax things, once you hit that threshold, then it cuts off and then you pay the amount over it?

[00:09:36.23] - Dan Paulson

Or is this a completely far and away separate thing from any of that?

[00:09:41.10] - Rich Veltre

I would not call it separate. My speculation would be exactly yours. You're getting a zero % rate on the first 950,000, which means that if you're just using the loan to go out and get equipment, and let's say you need $950,000 worth of equipment, you're not going to pay an upfront loan. If you're going to build a facility and add 950,000 worth of equipment, then maybe you say, well, I got the zero % upfront fee on the equipment, but I still had to pay it on the the rest of the business or on the facility. Right. Okay. It's still at $950,000, it's $9,500 credit. It's still a $9,500 advantage. To me, I'm looking at it going, that's huge to me.

[00:10:30.17] - Dan Paulson

It's the price of a used car.

[00:10:33.17] - Rich Veltre

Yeah. It's a decent size number, which is why I'm focused on it and saying I'm happy with it because, again, it really does show that this is a consistent push towards this is what we want to see happen. Again, we could talk politics all day and say, Is this enough? Does it really help? For the timing of what I think they're trying to accomplish, I'm not sure. I think it's very funny when you see people on TV talking about, Well, we're going to push to have everything manufactured here in the United States. Okay. There's still regulation around when I manufacture something, there's quality control, depending on what it is. There could be regulatory issues of somebody checking on it. Are we talking about something that's FDA regulated? Are we talking about something that's It's got a different government agency looking over it? And do we have something where manufacturers, you probably know better than I do, they're going to come in, the facility is done, and then they're going to run things, and they're not going to sell them. They're going to test them. How long does that take? So, again, if this is just one other piece that helps things move along in that time frame, along with the tax bill that came through, you start to see the consistency that, quite frankly, I haven't seen in a long time.

[00:12:06.10] - Rich Veltre

It's always been, oh, let's throw a whole bunch of money in electric cars.

[00:12:11.14] - Dan Paulson

Okay. And how is that done for us so far?

[00:12:13.28] - Rich Veltre

How is How's it going right now? I mean, some builders have figured it out. Gm seems to have figured some of it out, and overseas, they've figured it out. Tesla, I don't know. I don't know what they've figured out, if anything. You know I've often said, though, that Tesla, if you ask me, Tesla is more than a car company. To me, it's a battery company.

[00:12:37.28] - Dan Paulson

Yes.

[00:12:38.25] - Rich Veltre

And if the battery technology is there, I can't bash Tesla, although I'm not a Tesla fan from a car standpoint. But anyway, I digress as usual. But everything has become a little bit more I guess what I'm trying to say is it's just become more focused. That, oh, we're just going to throw a couple of dollars at you so I can buy an electric car and we give you all this incentive. And the critics, the people who still are hedging their bet between oil and gas and electric, I'm looking at it and I'm saying, we don't have the infrastructure for everyone in the country to have an electric car. And then I sit around the table with my father, who grew up an oil and gas guy. He's looking at it going, But I can't get from his house in Florida, he can't get to see me on an electric car. It's too far. So they don't have the ability.

[00:13:44.01] - Dan Paulson

Don't make the argument that it just means you get to see more of the scenery, because when you stop to fill up, it's going to now take you half a day to do so. But anyway, not an electric car discussion. Let's get back on the other stuff. Sorry. I'd love to talk about it because I'm a petrol head, so you're right in line with where my thoughts are at. So we got this 950,000. I see another potential here. Smaller, really small businesses, I won't call them microbusinesses, but businesses that fall under that million dollar cap. This could be a potential for us. So like small machine shops, that type of stuff could be a really good opportunity. Or if you're in a startup where it's I would call it more of a gradual rollout. So you're not trying to buy six pieces of equipment in a building on the first go around. You maybe are renting a small shop space. You need one key piece of equipment or two key pieces of equipment to machine or build what you got. This could be a great way to kickstart what you're trying to do. As we started talking about, I think a lot of businesses, especially more mature businesses, are easily going to fall over this $950,000 dollar cap.

[00:15:01.01] - Dan Paulson

But let's say you're a manufacturer who has an idea or has a unique specialty. And like I said, you really only need a couple of pieces of equipment, and you just need a decent space to hold that equipment in and maybe some up front for materials and whatnot. This could really get you going if you've got something good going on. So I see a lot of upside potential with this. It's supposed to, as you pointed out, it's supposed to roll out next week on Monday as of this recording. When do you think we're going to get more detailed information on it? Are we going to have to go to the banks for that? Do you think there's going to be another press release that's going to give the finer points? Because really, it's just saying, well, here's If you can borrow up to 950,000, you're not going to have to pay any fees on that. There's always caveats, right? And we just got to understand what those caveats might be. Is it, again, a cap? Are there some restrictions on what you can spend that money on? I don't think we've seen that yet.

[00:16:04.01] - Rich Veltre

I have not seen that yet, but I'm sure that... Two options here. I think there's probably going to be an SOP release, something that's going to say, this is what you can and can't do. I have not heard that yet, but usually my lender friends are usually the ones that go out and post that stuff and say, hey, we got this information and here's the details. And let's not forget, usually you can't just go to the SBA and borrow the money. You have to go to a the lender first, and the lender has the connection with the SBA. So I think your point about talk to your lender or talk to someone that you know that does SBA lending, they probably have more than I do. And they'd probably be the greatest resource if you're in the market and in a hurry. This is something that makes your life much more rounded. Great. Give them a call. To add to that, I think the other potential I see here is the really small business, the guy who is under $950,000, under half a million dollars. He may not have had even anybody taking a look at him.

[00:17:13.12] - Rich Veltre

He may not be interested. But the guy down the street who's potentially the same size, maybe even a little bigger, that now finds out that the guy down the street wants to retire and has the opportunity to do a small SBA loan to buy his next guy, call it a roll-up strategy, where he now has his shop and he buys another shop. And then together, they're much more attractive shop. But the guy who wants to retire now has the ability to do so. The guy who may have wanted to acquire him and didn't have an opportunity to do so or didn't have the facility to do so, can now make an offer with a zero up front, and hopefully with a better interest rate after interest rates dropped recently and the tax bill. I mean, there's a lot of ways that you could start to look at this being an opportunity for someone who didn't have one before. On both sides, on the buy and the sell side.

[00:18:13.08] - Dan Paulson

Yeah. So typically, where does that fee come out of? Do you have to physically pay that fee in? Or would that be, for example, $950,000 less 2 % of that?

[00:18:25.25] - Rich Veltre

It would come out of your closing costs at the time that you get the loan. So what's going to wind up happening in the old days, you would get the $950,000 loan, and they would take $9,500 off of it.

[00:18:39.16] - Dan Paulson

Right. That's what I figured.

[00:18:40.26] - Rich Veltre

So the amount that you would walk away with at the end of the day would be less. So really, it's just decreasing your working capital ability.

[00:18:51.26] - Dan Paulson

Right. Yeah. No, I think that is where it's good. Who knows? Maybe if this is successful, maybe they'll up it $2 million or something like that. That would be even better because I think there's a lot more people falling in that $2 to $5 million base, that if you could free up that working capital, that will incite some things to happen. That's for sure.

[00:19:15.07] - Rich Veltre

That's enormous, if you ask me.

[00:19:17.10] - Dan Paulson

Yeah. So that's our speculation on it. As with a lot of things government related, we only know what they've told us so far, which is pretty limited, but still a pretty exciting opportunity, especially since we've been talking a lot about succession lately and talking a lot about manufacturing, could be huge upside potential in some ways. $9,500, like I said, price of a used car. But if you look at it just from a loan standpoint, it's probably what a month and a half's worth of loan payments, if you weren't counting on that money? Because if you borrow 950,000, they're billing you at 950,000. You had to give 10 grand back to borrow that money. So you've now basically covered some of those initial costs, which if it bought you 45 days or 60 days, that would be a huge advantage, too. Anything else you see in the works on the SBA side, or was this really the biggest thing?

[00:20:12.16] - Rich Veltre

This was the biggest one. I haven't seen anything else. What I had seen up to that point was a lot of restriction, which was the opposite of what I'm seeing here. So the most recent changes to SBA lending was maybe be the June time frame. And it was a similar government crackdown on eligible borrowers. Essentially, it used to be where the SBA, as long as you were buying a business in the US, if you were a foreign person, you had opportunity to still potentially use the SBA, but that has been squashed. So along with other political agenda items, all things United United States and not so much a global economy.

[00:21:03.11] - Dan Paulson

Right. And we'll argue if that's good or bad at a later date. But right now, if you are an American trying to start a business, you've probably got a little bit more opportunity than you might have had.

[00:21:14.21] - Rich Veltre

They were definitely cracking down, number one, on eligibility, number two, on structure, because it used to be that you could... Trying to remember what the big one was. They don't like earnouts. And the seller note was another piece that they were looking at as seller notes had to be restricted. So in other words, the SBA had to get their money back first. So there was a little bit more of shrinking of the availability of what you could do with the seller note. So it certainly had... I don't want to call it necessarily negative. I think it just was really politically in line with what the agenda was. And so there were definitely restrictions put in place in excess of what was already there. You're going to the SBA, and you're asking the federal government to essentially back your loan. And this is why certain banks love the SBA loans because they're not on the hook for it. The SBA is. So now you're basically saying, US government, cover me. And the US government saying, okay, but here, you can only do it if it's this way. If you're a US citizen, yes, we'll help you.

[00:22:47.11] - Rich Veltre

If you are up to a certain dollar amount, yes, we'll help you. If you're trying to give someone else their money back before you get the SBA back, no, I don't think we're going to help. So these are the types of things that were getting shrunken. They were getting much more streamlined.

[00:23:04.20] - Dan Paulson

All right, cool. Well, I think we probably need to track down a banker somewhere that specializes in SBA loans, especially after this kicks into effect, and we'll probably get some more details on that. Look for that in upcoming episode or episodes. And Rich, always great to talk about new and exciting things that might help business owners, especially those thinking about selling. We'll We'll talk more next week. How does that sound?

[00:23:32.11] - Rich Veltre

Sounds fabulous.

[00:23:33.13] - Dan Paulson

All right. Bob, take it away.

[00:23:36.23] - Alice

Want to boost your sales and profits but need the talent to help you grow? Xcxo is a one-of-a-kind platform to find skilled fractional executives to help develop your team into a high-performance powerhouse. Fractional leadership is a great choice when you consider the average executive-level candidate can cost you hundreds of thousands of dollars in salaries, benefits, and incentives. Xcxo finds you the executive and utilizes their talents to build your team's experience, all for a fraction of the cost of a full-time C-suite leader. Contact XCXO today to fill the gaps in your leadership team. Visit xcxo. Net to learn more.