Anyone remotely involved with small businesses, either as a consultant, lender, supplier, leasing specialist, trade association, or simply a consumer who is tired of driving by sections of the city and wondering why your favorite business unceremoniously threw uručnik , would really like to hear some good news. Not to mention the small business owner himself. After all, there are 27 million small businesses who deserve to be successful in this nation, but often are ignored by the Bush administration. Classic does not complainers by nature, they just want a note of hope thrown in their way. I'm not talking about the wide eyes of idealists looking for handouts, in all due respect to Emily Dickinson, they are not looking for "the thing with feathers that perches in the soul." Just give us a few bucks, and we'll run with it. This is a continuation of papers (20 in all) on the subject: Help. Is there anyone out there loaning to small businesses anymore?
Fortunately, there is a loan program out there and SBA lenders actually make the 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, the interest rates currently at 7.75%, funding and two weeks, and the amount is wired directly into 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 credits.
Enter the Obama stimulus bill. Let's see how it affects this program and small business loans in general.
If you tried to cross over 1,100 or so pages a new stimulus Bill (American Recovery and Reinvestment Act 2009), know as chipping through granite. No, let me pull out a little gem. This now allows the U.S. Small Business Administration (SBA you) to guarantee up to 90% of loans by private lenders under their program. Let me explain. This is a great community Express.
When the Small Business Act was passed in 1958, it is a very easy task. Find a way to get loans for small businesses who can not get them through traditional channels. He did it in an ingenious way. They knew banks where reluctant to loan to small businesses, especially startups, because of fear of failure. So the SBA collected a fee on each loan and use it as a fund to pay the bank if you default. Bingo, there was invented the SBA guarantee fee. It does not take a rocket science degree from MIT and an MBA from Harvard to know this gives incentives to banks to make more loans.
SBA loan programs have a guarantee of 50% to 85%. Specifically, the SBA currently has a 85% guarantee on loans up to $ 150,000 and up to 75% on loans above $ 150,000. On the other hand, there are some programs that only go as high as 50%, including the Express Loan Program (for those types of loans the new guarantee will not change). With the new stimulus Bill, the SBA has the right to increase these fees from 90 %.
Think about it for a moment. Simple math tells us more guarantee, the more likely the bank making the loan. For goodness sakes, 90% is tapping on the door of a 100% guarantee! Also note the guaranteed portion is usually sold on the secondary market (which was recently shut down almost anything) so there is more chance for loans to be sold and more money to return to the cash banks for further lending.
Notice I said the SBA has the right to increase it to 90%. You can choose which program. That has not happened yet. But if I was a betting person, I would say that would be seriously looking at most of the program, because everyone is scraping for ideas to revive the economy.
For those who are addicted to primary source documents, this is what the new statute, in relevant part (my lawyer wanted to add that) says:
SEC. 502nd Economic incentives LENDING PROGRAM for small businesses. (a) Purpose The purpose of this chapter is to provide Small Business Administration to guarantee up to 90 percent of qualifying small business loans, which is the right lenders.
(b) DEFINITIONS-For purposes of this section:
(1) The term "Administrator" means the manager of Small Business Administration.
(2) The term "qualifying small business loan" means any loan for a small business concern under section 7 (a) the Small Business Act (15 USC 636) or Title V Small Business Investment Act of 1958 (15 USC 695 and following) except for such loans under section 7 (a) (31 ).
There is a sunset provision under paragraph (f) ensures that only good for one year after the enactment of laws, unless extended by Congress.
So what does it do for me now as a small business owner? Well now is not so good news. I predict the SPP will be an increase in many of its programs to 90%. However, the bank lending mood again, there must be a secondary market. There is a new law about it, which we will discuss in another article. But once we have the secondary market, I predict that banks will not only credit, but in a big way. For three reasons:
First, history tells us when the economic inactivity, primarily because of depressed conditions, when the cycle of change for the better, as the sling shot effect, it changes dramatically. Remember when people were able to refinance or buy their homes because of the tight market and high interest rates? Rates came down, and many jumped at the chance to refinance, improve their homes, and buy (some say too precipitously) with abundance. Although this is an exaggeration and it depends on other factors such as employment, living standards, etc., consider the analogy that when things loosen up, it will be a significant number of business loans.
Second, banks are largely in the business of making loans and are doing so for some time. They will be anxious to make profits again.
Finally, simple economics tells us that when the vacuum in the market, capital will rush out and take to the open market and the initial lack of competition. Big banks do not make business loans are such a small community banks begin to rush in to take over the arena. Give them the secondary market and they will explode.
Thus, for a small business owner, I think this news of 90% guarantees is favorable. Why are they so long?