For those small business owners who think they were ignored in the new stimulus bill (American Recovery and Reinvestment Act of 2009), think again. While the debate continues to unravel as to “who gets what and whether it is enough”, one thing is certain: more money is coming in the direction of small businesses through the U.S. Small Business Administration (SBA). Remember, this is the agency responsible for the outreach, licensing, and implementation of, you guessed it, money into the pockets of small businesses. This is done through private licensed lenders who have agreed to join the SBA program. In other words, if your local community bank has a commercial loan department, it might very well have a SBA department which makes these loans. They are called SBA loans because the Federal government will reimburse, to a certain percentage, defaulted loans, thereby giving incentive for the private banks to loan more money. Net effect–more loans will be available for small business concerns. This is a continuing article (20 in all) on the subject: Help. Is anyone out there loaning to small businesses anymore?
Before we talk about how much more money is available to the SBA under the stimulus package, let’s look at the current status of one of the popular SBA loan programs. There is a loan program out there and SBA lenders are actually making loans currently: the Community Express Loan Program. This gives unsecured small business loans between $5,000 and $50,000 with very little paperwork, answers typically in two days, interest rates presently at 7.75%, funding and two weeks, and monies wired directly to your business account. There are still lenders participating in this program, although Congress has failed to make the program permanent and still has a 10% cap on the number of loans.
Enter the Obama stimulus bill. Let us look how it affects this program and small business lending as a whole.
So should we be excited by the stimulus package? Isn’t it all too customary in a new spending bill for a government agency to receive more funds? Not at all as to the SBA. During the Bush Administration tenure, they could easily have renamed the agency the ISBA (Ignore Small Business Association). As they were making “sound bite” statements to the press of how they were helping small business, they were arrogantly trying to dismantle it, or when they were in a better mood, just cutting the budget.
The point is we have a new administration that actually likes small businesses. Remember these are additional monies over and above the SBA’s current budget . As we all know, budgets are determined in approximately March of each year (assuming Congress has the good graces to agree) to be used for the next year. The SBA has already received their budget. This is whipped cream placed on the top of that small business cake.
And we are not talking about token amounts here. Here is how the additional monies are broken down:
1. 375 million for temporary fee reductions or elimination on SBA loans and increased SBA loan guarantees, up to 90% for some loans. Translation: When a borrower gets a SBA loan they pay a SBA loan guarantee fee which goes to Washington and used as a war chest to pay banks if there has been a default. That guarantee fee, depending upon the loan, is currently between 50% and 85%. There is a possibility that some loan programs can now be increased to a whopping 90% guarantee. If a borrower no longer pays these fees, the money has to come from somewhere, and in this case it is taxpayers’ money which is subsidizing those fees.
2. 255 million for a new loan program to help small businesses meet existing debt payments. Translation. You have a loan secured by fixed assets or real estate and want to refinance it, either to lower payments or put more money in your pockets for expansion.
3. 30 million for expanding SBA’s Micro Loan Program, with $6 million to help finance new lending and 24 million for technical assistance grants to Micro lenders. . Translation: Under the Microloan program, the Federal government loans blocks of money to the Microloan lenders who then reloan it, at higher rates, to the deserving communities and small businesses and usually collateral is required.
4. 20 million for streamlining the SBA lending and oversight process with new technology. Translation: The streamlining process will make it faster and more efficient to process loans and oversight is to monitor SBA licensed lenders–make sure they are acting for the benefit of small businesses and complying with the program guidelines.
5. 15 million for expanding SBA’s surety bond guarantee program. Translation: If you are a building contractor and have to take out a performance or payment bond on a project, you need substantial assets to secure the bond. This will help getting your hands on that needed bond and be able to secure the contract.
6. 25 million for staffing as to the new programs.
7. 20 million for the Office of Inspector General. Translation: To inspect and audit the licensed SBA lenders.
Although one could make the argument this new law is “too little too late”, we have to give our current administration a chance to do good things with this fresh money. And don’t forget the mindset of the SBA lender. Although they are not as wildly quixotic as stock market speculators, their purses open and close based upon the mood of the country. We want them to be as comfortable as possible when we walk toward them for money.