Small business gets its bailout
(Note: The Recovery Act did not directly assign $15.5 billion in funds to the SBA, but $730 million that has so far supported $13.4 billion in SBA-backed loans to small businesses, according to the SBA.)
After having watched Wall Street get a near $1 trillion bailout, America’s reeling small businesses will get their own relief package from Uncle Sam, in the form of the “Small Business Financing and Investment Act” that was passed by the House of Representatives last night by a 389-to-32 majority vote.
The new legislation, which increases the Small Business Administration’s lending budget by $44 billion, was announced on a day when President Obama met with small business owners to discuss his proposals to improve their access to credit in order to boost job creation. The bill will still have to be approved by the Senate and there is no timetable for when the money will get into the hands of small business owners.
“This bill is about choices. It’s about better options for the small businesses that didn’t get a bailout,” said Nydia M. Velázquez, the chairman of the House Small Business Committee in a prepared statement. “Small businesses with tight profit margins don’t have the luxury of simply ‘tightening the belt.’ When money is short, they’re often forced to lay off workers. But with unemployment at 9.8 percent, we just can’t afford more losses. That’s why this bill delivers critical capital to new ventures.”
The latest small business stimulus follows on the heels of the $730 million Obama included in the Recovery Act passed in February, which has so far supported $13.4 billion in SBA-backed loans to small businesses, according to the SBA.
Under the new legislation SBA loan maximums for both 7(a) and 504 loans have been increased to $3 million (up from $2 million) and to $25 million (up from $1.5 million) respectively. The 7(a) loan program covers most startups and existing small business, while the larger 504 program is geared to larger, manufacturing- or construction-type companies that need to purchase real estate, machinery or to build brick-and-mortar facilities for expansion or modernization purposes.
The Recovery Act raised SBA-backed loan guarantees from 75 percent to 90 percent, and to 100-percent in the case of emergency microloans of up to $50,000. However less than 30 percent of the roughly 8,000 U.S. banks offer SBA-backed loans. The new bill should help to address this concern by ultimately allowing the SBA to step in as the “lender of last resort” should small firms still be unable to receive credit from banks.
The bill’s passage comes as a new PayNet report showed a rise in defaults by small and medium-sized U.S. businesses in September. PayNet’s Small Business Lending Index, which measures the overall volume of financing, fell 22 percent year-over-year in September, which is a troubling sign.
“It’s hard to imagine a robust recovery when you see numbers like this,” PayNet president and founder Bill Phelan told Reuters.
According to the latest figures by the SBA’s Office of Advocacy, there were nearly 28 million small businesses in the U.S. in 2006. That number is a little deceiving, as just 6 million of those businesses had more than one employee. Ninety percent of those 6 million small firms, or “employer firms” as the SBA refers to them, have less than 20 people on payroll. Generally, the SBA defines a small business as a company that employs less than 500 people. Of the roughly 3.5 million new jobs created over the course of 2005-2006, more than 70 percent (2.5 million) were generated by small businesses.
Since the recession officially took hold in December 2007, the number of unemployed Americans has doubled from 7.6 million to 15.1 million as of September 2009, according to the U.S. Bureau of Labor Statistics.
“The Small Business Financing and Investment Act will spur job creation and innovation, and help save or create 1.3 million jobs each year,” House Speaker Nancy Pelosi said in a statement. “As we emerge from this recession, our recovery will depend on small business owners and entrepreneurs.”