SBA has the tools to boost small business
The Obama administration is taking actions to make a big dent in the small-business credit crunch by offering new incentives to small-business borrowers and lenders through the American Recovery and Reinvestment Act and Treasury Department actions.
The bill’s primary goals for the U.S. Small Business Administration are jump-starting job creation, restarting lending and promoting investment in small businesses.
For small businesses, the act eliminates SBA guaranteed 7(a) and 504 loan fees and offers tax credits. For lenders, it temporarily eliminates 504 loan fees. The fee eliminations are retroactive to Feb. 17, the day the act was signed. SBA is developing a mechanism for refunding fees paid on loans since then.
The act also supports guarantees of up to 90 percent on most types of 7(a) loans to qualified small businesses. The temporary loan fee eliminations and 90 percent guarantee provisions will apply to approximately $8.7 billion in 7(a) loans and $3.6 billion in 504 loans. SBA estimates this will cover lending in both programs through calendar year 2009.
In addition, the Treasury Department will commit up to $15 billion in Troubled Asset Relief Program, or TARP, funds to purchase existing and new SBA-backed loans made by banks, freeing up more capital so these banks can restart SBA-backed lending to local small businesses.
The act also provides SBA with $730 million in total funding to cover the costs of temporarily eliminating loan fees and raising guarantee limits on some loans, provide extra funding for SBA-backed microlenders and for a new loan program to help viable small businesses with immediate economic hardship make payments on existing loans.
Also, small businesses that need surety bonds to compete for construction and service contracts can qualify for SBA-backed surety bonds of up to $5 million — more than double the previous $2 million maximum.
Another element of the act that is already in place is SBA’s microlender program, which backs provision of loans of up to $35,000 to small businesses and start-ups. Because this program is already operating, you can go to a microlender today and apply for a loan. The act funds $50 million in new loans by microlenders, plus $24 million to help pay for the technical assistance and training they provide to loan applicants.
The level of funding that SBA-licensed Small Business Investment Companies can receive to make venture capital investments in small businesses also has been raised, along with the percentage of their investments that must be made in smaller businesses from 20 percent to 25 percent.
We already have seen significant interest in a new program, America’s Recovery Capital, or ARC, stabilization loans. Once in place, this temporary new program will offer deferred-payment loans of up to $35,000 to viable small businesses that need help making payments on an existing, qualifying loan for up to six months. These loans will be 100 percent guaranteed by SBA. Repayment would not have to begin until 12 months after the loan is fully disbursed, giving small businesses time to refocus their business plans in order to succeed in the long run.
Finally, I want to emphasize that all of SBA’s existing programs are open for business – we are backing loans, and providing technical assistance, training, and contract help to small-business entrepreneurs, whose proven ability to create new jobs and commerce is second to none, and in whose hands the next phase of our economic recovery rests.
Witmer H. Jones is the U.S. Small Business Administration’s New Hampshire district director.