Ask About Stimulating Access to Capital
What is the Stimulus law going to do for struggling small businesses, if anything?
Jaded in Jersey
Dear Jaded in Jersey,
You'll be overjoyed to hear that the new American Recovery and Reinvestment Tax Act ("the Stimulus") impacts small business in several areas. It reduces fees for loans, offers higher guarantees in some cases, and creates some new initiatives while beefing up existing programs. It is aimed at helping small businesses stay in business in difficult economic times by providing access to leverage, the ability to borrow funds to pay off loans or payments coming due and to hopefully retain, or even create, jobs.
By giving the SBA a $730 million, 2009 budget vs. the $657 they had requested, a strong message is being sent about the value of small businesses to our economic health. Over $250 million is targeted, via a new program, for loans to small businesses needing to make payments of principal and/or interest on existing loans. Congress instructed the SBA to implement these programs as soon as possible in order to help unfreeze capital and get small businesses moving forward again. Decreasing fees for access to loans, helping businesses to obtain surety bonds, adding SBA staff to better serve lenders and borrowers, and updating SBA technology will help accelerate small business stability and growth.
Expanding the Microloan program by pumping an additional $50 million to microlenders to help minority owned and rural new businesses start or grow will permit these tiny enterprises to have a fair chance at access to funds as well. These Microloans are limited to $35,000 each. Loans of up to $35,000 will also be available to qualifying business needing cash to make payments on an existing loan for a period of six months and this type of loan will not require repayment for 12 months. As an added incentive to lenders, these loans will be 100 percent guaranteed. This new program is aimed at re-stabilization of existing small businesses that need to buy a little time to adjust to economic pressures.
The SBA has also been authorized to use some Certified Development Company (504) loan capital to provide financing for equipment and assets other than realty. This should permit a business to expand capacity which might be otherwise impossible due to lack of access to capital through normal channels.
The Stimulus law also authorizes the SBA make direct loans to brokers to establish a secondary market. Lenders will be able to sell existing, guaranteed, 7(a) loans to the brokers who would package them to sell to investors via the secondary market, thus freeing up capital to be lent to other small businesses. A secondary market may also be established for 504 loans, providing liquidity for further community investment purposes.
So you see, there are quite a few initiatives designed to help small firms access needed capital in a number of ways. Offering incentives to lenders to actually lend money at little risk seems to be a strategy that may get the ball rolling sooner rather than later.