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Several Southland small business owners are locked into a deal with the Small Business Administration that has them paying exorbitant interest rates by today's standards on loans they took out many years ago--with no financially feasible way to get out.
The SBA in 1979 initiated the 503 loan program, guaranteeing loans for 20 to 25 years with interest rates of 11 percent to 15 percent--which was low back then. The loans were to finance 40 percent of the cost of a particular company's project, with the rest of the money being put up by commercial lenders or the companies themselves.
What most of the borrowers didn't realize was that an obscure clause in the loan agreement stated that borrowers were subject to a huge penalty fee if they paid off the loans before their due dates.
Now that interest rates are at historic lows, many of those borrowers...