A Drop in the Bucket

Small businesses are the invisible engine that drives both our local and our national economy. The American Recovery and Reinvestment Act of 2009 allocated $730 million to support small businesses. That is 0.05% (yes, I do mean 5/10 of a percent) of the combined bailout total ($700 billion from the Bush administration and $787 billion from the Obama administration). Want a more current number? That is 1% of the amount AIG has received in bailout funds.

Our attention (and money) is almost always focused on large, international companies who employ thousands of people. But those companies employ less than of third of our nation’s employees—and only 15% of employees in Portland. Annually, over the past decade, 70% of net new jobs were created by small businesses.

How hard has the economic downturn been for small business? The U.S. Small Business Administration (SBA) typically guarantees about $20 billion in loans annually, new lending is trending below $10 billion this year.

Ok, enough with the complaining. What is the Treasury Department doing to support small businesses?

    • Create a market for loans through the direct purchase of securities backed by SBA loans.

      Lenders (want) need assurances that they are sharing risks they take by lending to small businesses. To allay this concern, the Treasury Department has raised the loan guarantees for SBA loans to 90% for SBA 7(a) loans.

      Currently the federal SBA loan guarantees – up to 85 percent for loans at or below $150,000 and up to 75 percent for larger loans – have not been large enough to give banks the confidence they need to lend in the current economy.

      Effective today (March 16, 2009) any who participates in the SBA 7(a) loan program can request the higher level of loan guarantee.

          These fees can be as high as 3.75 percent for larger loans, which significantly increases the cost of borrowing for small businesses. For borrowers or lenders charged any of these fees on loans approved on or after February 17th, the SBA will provide a refund,

              The SBA pledges that complete loan applications will be turned around quickly by the SBA – usually in as little as two to three days.

                  75% of any capital gains derived from investments held for 5 years in small businesses will be tax-free.

                  There are also some important changes to the tax code affecting small businesses.

                      Currently small businesses pay 110 percent of their previous year’s taxes in estimated taxes. The American Recovery and Reinvestment Act allows small businesses to reduce their estimated payments to 90 percent of the previous year’s taxes.

                          Businesses with gross receipts of up to $15 million can now “carry back” their losses for up to five years, effectively allowing them a rebate on taxes paid in previous years. The Joint Committee on Taxation estimates that this measure will increase liquidity for small businesses by $4.7 billion by September 30, 2009.

                              Small businesses may immediately write off up to $250,000 of qualified investment in 2009. Small businesses may also take a larger tax deduction within the first year of a property’s purchase.

                              Reality test

                              I spoke to a small business lender at a community bank last week just after she got off a conference call with the SBA about rolling out the small business loads as laid out in the original legislation.  She said the call consisted primarily of lenders asking the SBA what was happening and when and the SBA responding by shrugging their virtual shoulders.  I know that the local community banks and credit unions are raring to go on the loan roll-out.  I also know that some of the larger banks are now advertising the number of SBA loans they have given in the past.  So, I am curious to see how smoothly this goes, but I am very happy to be pleasantly surprised.


                              1. I will be happy to be pleasantly surprised also. However, although some of the measures suggested will help those currently in small business management, micro businesses still face the reality that people are not spending as much and when they do spend, they shop – seriously shop – before they spend. For those thinking about starting a small business and taking advantage of the new loan guarantees, they still have to answer the 10 question with which potential entrepreneurs must grapple. See http://www.grifflindell.blogspot.com/ March 9th blog and back.

                              2. Just to clear up a possible misconception, the SBA does not make loans, they only guarantee them.

                                ‘7(a) loans are only available on a guaranty basis. This means they are provided by lenders who choose to structure their own loans by SBA’s requirements and who apply and receive a guaranty from SBA on a portion of this loan. The SBA does not fully guaranty 7(a) loans. The lender and SBA share the risk that a borrower will not be able to repay the loan in full. The guaranty is a guaranty against payment default. It does not cover imprudent decisions by the lender or misrepresentation by the borrower.

                                Under the guaranty concept, commercial lenders make and administer the loans.’

                                The loan documents are turned around by the lending institution and not by the SBA, though in some cases, the SBA might inspect them to ensure that they meet the “bank’s”

                              3. Here are a couple of resources that were sent to me in response to this post:
                                From Brian Setzler (http://www.Trilibrium.com): Here are some additional SBA services. Free training.http://www.sba.gov/services/training/onlinecourses/

                                The Small Business Administration will host a Web chat Thursday from 1 to 2 p.m. on what the economic stimulus legislation means for small businesses.

                                SBA Associate Administrator Eric Zarnikow will host the chat, and will answer questions from small businesses. As a result of the legislation, the SBA has increased its government guarantee on its flagship 7(a) business loans and temporarily eliminated fees on these loans. Fees also have been eliminated on loans made through its 504 program, which primarily finances real estate.

                                The SBA also is in the process of creating new programs as a result of the bill, including bridge loans of up to $35,000 for small businesses having trouble making payments on existing loans.

                                To join the live Web chat, go to http://www.sba.gov and click the Online Business Chat icon.

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