Sports admin  

Obama Changes in the Small Business Administration – Welcome Relief for Small Business Owners

On March 16, 2009, President Obama, in a long-awaited speech, finally reached out to the 27.2 million small businesses in this country and extended his hand. He may not have gone to the mountain, but he certainly walked down Main Street and recognized the plight of struggling small business owners. And it was only a matter of time before he did. After all, the American Recovery and Reinvestment Act of 2009 (“Recovery Act”) laid out the beneficial provisions for small businesses very well, and just as promised, the SBA has published the regulations to get rolling. And I don’t mean more government promises or red tape, but bottom-line capital to be infused into the coffers of serving business owners. So let’s roll up our sleeves and look at one of the most important elements that was implemented on Monday.

Historically, SBA loan programs had guarantees of 85% for loans of $150,000 or less and 75% for loans greater than $150,000 (13 CFR Part 120). On the other hand, there are some programs that only go up to 50%, including the Express Loan program (for those types of loans, the new guarantee will not change).

As we all know, on February 17, 2009, the President signed into law the Recovery Act which, under section 502, authorized the SBA to guarantee loans up to 90%. On Monday, the SBA completed its review of the legislation, announcing in a policy notice that the guarantee would, in fact, increase to 90% effective March 16 under the various 7(a) loan programs of the SBA. SBA.

Simple math tells us that the higher the collateral, the higher the probability that the bank will grant the loan. For God’s sake, 90% is knocking on the door of a 100% guarantee! Also keep in mind that the collateralized portion is usually sold on the secondary market (which recently closed to almost nothing in September 2008), so there’s a better chance of loans being sold and more money coming back into the banks’ coffers. to continue. loan.

Now let’s translate this into popular small business programs. The Community Express Loan Program allows for quick and reasonably priced SBA loans up to $250,000 (although most lenders are spreading money around the neighborhood between $5,000 and $50,000 without collateral). They are now 90% guaranteed. And remember that there are now lenders who make such loans even in this economy. The equally popular US Patriot Express Loan Program for veterans and their spouses or windows, amounts to $500,000 and is now also guaranteed at 90%. At the same time, the workhorse 7(a) loan program, which is typically for loans of hundreds of thousands of dollars, was also increased to 90%. Not to bore you with the details, but the only exceptions are almost minimal, that is, guarantees are not used for commercial enterprises involved in gambling, aquariums, zoos, golf courses, or swimming pools. In addition, the SBA will not issue a guarantee to a borrower who hires, recruits, or recommends for a fee employees who are unauthorized aliens as defined by the Secretary of Homeland Security.

And it gets even better. Banks that are already SBA lenders do not have to do anything different in the loan process. That is, there are no changes to the filing process for obtaining an SBA guarantee loan number. They just get their approvals from the same central processing units across the country as they did before. Same simplified paperwork.

Of course, taxpayer dollars will fund these guarantees, especially since the borrower no longer pays a guarantee fee at closing. In other words, the 90% guarantee will remain in effect as long as there is money appropriated by Congress. The current estimate is that approximately $8.7 billion will be allocated for these guarantees, of course, depending on the volume of the loan and the default rate.

So how will banks react to this news? Many experts predict favorably. Obviously, with a 90% guarantee, there is less risk if the loan goes south. This also means that the traditionally robust secondary market for buying government-backed loans, once it gets going, will also find them desirable for buying in mutual funds. There’s also another intangible you don’t read about in the news: The environment in Washington has never been better for small businesses. Now you have a Administration that respects small businesses and wants to do everything possible to create their success.

Translation: Banks are comfortable with the new SBA (unlike the more insular and contentious regime under the Bush administrations that spent more time fighting and not communicating with lenders than trying to treat them as partners) and therefore are more willing to lend even though default rates go higher. They know that the Obama administration will probably understand the situation given current market conditions.

So for the small business owner, this news of 90% guarantees is very favorable. It will deliver much-needed capital to startups and existing businesses for their expansion needs. Finally someone here is listening.

Leave A Comment

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1