One of the biggest disappointments about the bill was that it lumped the very successful SBA Loan Program in with what many Republican Senators called “TARP Junior.” Had there been a stand-alone bill extending the SBA program, it might very well have passed sooner - which would have provided the very aid that many lawmakers professed to support. As it is, we will have the next three months to push through needed financing before the extension of the increased loan guarantees and lower fees end again. What will not run out, though, is the increase in lending limits for SBA loans, from $2 million to $5 million. This will be a huge benefit for qualifying businesses.
It is interesting to see what is already coming out regarding the centerpiece of the legislation. In an article carried in Bloomberg Businessweek, AP business writer Pallavi Gogoi reported that the enthusiasm for the community bank loan program appears tepid at best. Several bankers indicated that they already have enough capital to lend; what they lack are qualified customers who want to borrow. Others fear the possibility of regulations attached to any money from the program. As Triumph Bank, Memphis, CEO William Chase put it, the bank didn’t want the government as a regulator and a partner at the same time. Chase also pointed out that, although there are not currently the same draconian regulations as in TARP, rules can always be changed.
At the same time, demand from small businesses for credit has dropped because of the drop in business most are experiencing. In a recent survey by the National Federation of Independent Businesses, only 4% of small business owners contacted indicated that a lack of financing was their number one concern. The number of businesses planning to spend capital on projects was also at a 35-year low. The primary concern of most small business owners is keeping enough income flowing to remain in business until the economy strengthens.
One other element of the bill, tax breaks, seems to be less advantageous as they would seem. For example, retailers and restaurant owners would receive breaks if they remodeled or built new locations. However the majority of restaurants and retail locations are just working to keep their heads at sea level. They are not looking to put money into a facility that might not provide a return on the investment before they go out of business. Tax breaks for major purchases of equipment such as computers and vehicles will likely be more beneficial to large businesses that have the resources to do this, not to struggling small businesses. Finally, a provision to allow small business owners to write off health care expenses from self-employment taxes is good, but it only applies to 2010 taxes. With the expected changes from Obamacare, an extension beyond the current tax year would have been a major benefit to small business owners.
After $3,400,000,000,000 (Trillion) in stimulus funding that does not appears to have done a bit of good for the business community, real estate, and unemployment, I view this $30,000,000,000 (Billion) as coming very late in the game and with some hooks that will not help the banks or businesses. I am exceptionally skeptical of a government that waits 18 months to help the real economic engine, the small business owners. My skepticism is based on the formula that concludes; this is too little too late.
But I also know that business owners are enormously optimistic, a little crazy in a good way, and risk takers par excellence. My 30 years in this field tells me that a little SBA funding can go along way. FedEx, Apple, Compaq, AOL, and many other major public firms got their start with SBA loans. So like my business brethren, I hold out hope that we will muddle past this rough patch, start a few million businesses, create 8-10,000,000 new jobs, and be back to the races.
These changes to the SBA program are a vote of confidence in my mind. Not just because the Obama administration and his pack of collectivists think it is politically expedient to ram this bill through in hopes of garnering a few votes to save their political party. The three main benefits of these programs are the reduction in loan fees to near zero, a 90% guaranty on 7(a) loans, and a $5,000,000 well for guaranty authority for those businesses brave enough to dive into the deep end of the loan pool. Call this the law of unintended consequences, but this might be a good way to show business owners the government is finally serious about helping Small Street after bailing out Wall Street. We can only hope.
But if you read the last 3 or 4 blogs, you know I will be skeptical until I see results on Main Streets, not just at 1600 Pennsylvania Ave., Washington, D.C. I have my finger on the pulse of everything that happens to businesses, and that pulse is still weak.
So where does this leave us? With too much time wasted when SBA loans could have made real impacts for companies and with relatively little time left before the extended guarantees run out again. But while they last, now is the time to move forward if you have thought about an SBA-guaranteed loan. Your first step, if you have not done so already, is to speak with someone who can explain how a 7(a) or 504 loan could benefit your company. Contact me at SBALoanStore.com and receive two complimentary reports, along with a chance to discuss your business needs.
Craig G. Francis is the owner of Francis Financial and The SBA Loan Store. He has been a top producer of SBA Loans since 1981, and has worked with Dun & Bradstreet and Bank of Commerce. Craig Francis has the expertise to steer clients through the often confusing rules and regulations associated with SBA Loans, having helped over 2,000 businesses acquire over a billion dollars in loans. He can be contacted through CraigGFrancis.com, SBALoanStore.com, on LinkedIn, or at 888-666-9722
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