Small business gets its bailout

October 30, 2009

(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.”


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Having been in SBA lending for 15 years, this bill is a real boon to small business. Except, SBA didn’t fix probably the biggest problem that keeps many small banks from SBA lending. It is the collection of the guarantee. Trying to collect on the SBA’s guarantee is incredibly difficult and time-consuming. Large SBA lenders have staff dedicated to it. Smaller community banks do not, so basically, to a large number of them, no matter how good the guarantee or anything else is, it’s not worth the trouble.

Posted by Doug Carleton | Report as abusive

SBA is an abysmal waste of time.

Posted by James Reginald Harris, Jr | Report as abusive

My name is Judith I came to this country at the age of 18th I work in the fields for like 4 years and many other jobs to be able to make my dream come true 11 years ago I went and opened my own business which is a Bakery in california.we are now having a big problem to keep going because the economy turn down big time the space rent when up the prices of the ingredients when up and we can not keep up with that because the customer don’t have a job or the providers are just making up for them and thas it so we as small business is just very hard to continue,eventhoug small business is the country fuil.So please President Obama just like we vote for you to make the changes help us to contunie so I don’t close my Bakery or send home the 6employees I have that I have not ley off because I fill bad for there family that depend of them.Is urgent that land lord and companies that provide make some fair desions here is cretical is very unbalance they get more when we have to do all the work,the production and the hard work while the providers just deliver a expancive ingredient that we have to sell for very cheap in order to contunue. not fair please help us.

Thank you for the time to reed this email.
Judith Guzman

Posted by Judith Guzman | Report as abusive

I need to restructure some of my small business’ debt, buy new equipment, etc. I’ve tried one of the big banks and even with my personal credit score of 794, all the financial records for me and my business, I was turned down. I just don’t want to be rejected again…so why go to all the trouble…I don’t need a million dollars…I need $150,000.00. But maybe if I did apply for a million or more they might take me seriously…just like the big business guys.

Posted by P M Hill | Report as abusive

Better access to credit is certainly a good step, if you can qualify. But the greatest negative force hurting business today is uncertainty. Obama’s agenda items are mostly anti-small business. From higher taxation, health care reform, card check to cap and trade, all these future changes are bad for business. If the additional SBA loans are intended to buy off small business so we won’t oppose his agenda, especialy health care right now, I do not think it will work. We can look out on the horizon and see that Obama is not pro-business and he is not going to make it any easier when he raises our taxes and by doing so takes the funds we need to grow.

Posted by Joe Bizman | Report as abusive

I’ve been successfully growing my private dental practice for 7 years and learning the ins and out of running a “small business”. The practice growth reached a plateau just as we started to feel the effect of this current recession. Production has tanked and I have been struggling to manage my cash flow, keep my 7 employees fully employed and pay all my fixed expenses. My personal business bank has turned me down for a business dept consolidation loan ( after keeping me waiting for an answer for 3 months!). I have 2 choices now: (1) lay off half of my staff (further contributing to the dismal unemployment statistics) and “downsize” or (2) shut down completely and try to sell what equipment equity I have built at a loss. If what I am going through is a picture of how the tens of thousands of small businesses in the country are struggling then the rosy picture that Washington is trying to paint is fairy tale! My beef here is that the trillion of “stimulus” dollars put out to wall street was to free up credit to all sectors of the economy including small businesses. Why isn’t the access to credit trickling down? If Washington though AIG and the big Wall street banks were “too big to fail” then they should do the math and see what the consequences will be when the thousands of small businesses (like my little dental office) that make up the core of the US economy start failing “en masse”. The Obama administration, Congress and the SBA need to step up and help “main street” not Wall street. That is where the failure or success of turning this economic downturn is going to come from.

Posted by Cedric Chenet | Report as abusive

I own a small Excavating business with 23 employees we average around 4.5 million in sales a year. This year we will do 3 million. Things are picking up a little but it has been tough with cash flow problems. Now my bank tells me I have until July 15th 2010 to Pay off my Line Of Credit and find a new bank because they will not extend me any more credit. I have tried many banks this last year to restrut my debt but not one has said yes. Is this the answer I have been praying for? Will any banks look at my business with a loss? Are there any banks willing to take a chance on a business that has a good track record but has been effected by the economic downturn? I know Wallstreet says things are getting better but mainstreet is not feeling it. I hope this small business bailout is the answer for the people that really need it. Hopefully not to little to late!

Posted by Shane | Report as abusive

FINALLY! I know many small business owners who will benefit from this $$ increase substantially. Will things balance out again when the tax hikes kick in?

Posted by Small Business Web Design Company | Report as abusive

Obama’s Economic Plan
$13 Billion dollars will be gone with the wind …

President Barack Obama called recently on Congress to approve $250 payments to more than 50 million seniors to make up for no increase in Social Security next year.
The $250 payments would match the ones issued to seniors earlier this year as part of the massive economic recovery package enacted in February.

The questions which should be asked: What the $250 will do to each recipient?
Does it improve the life style of any of these seniors?
Does it pay their bills?
Does it improve the economy?
All it really does is provides a very minor relief to those needy people for only a couple of days! It’s like blowing on a burned finger for a temporary relief!

Truthfully, this type of stimulus plan is not smart, it’s even scary, because it won’t take you anywhere, it just reduces the government budget and increases the federal budget deficit.

The President could have lended the $13 billion to small businesses with good business plans.
If the average small business loan is about $200,000, each million will create about 5 new businesses. (1 million divided by $200,000 = 5 businesses).

Each billion will create: 5 x 1000 = 5000 new businesses.
13 billion will create: (5,000 x 13) = 65,000 new businesses.
If each business will employ an average of 5 people :
Total jobs that will be created: (5 x 65,000 = 325,000 jobs).

If president Obama used the $13 billions to lend small businesses, it could be a much smarter move, because:
1- The $13 billion will be paid back to the government within 5 – 8 years.
2- The 325,000 jobs will generate income tax paid to the government every year for the life of these businesses.
3- The government will be taking off of its burden the unemployment benefits to 325,000 citizens.

President Obama Economic Advisors should be more careful with their stimulus plan spending.
There are so many people these days with brilliant business plan ideas, but it’s so difficult for them to get a small business loan, even tough, we always hear from Obama’s administration how much they care about small businesses, and they claim that the small business is the back bone of the economy.
Other billions of dollars are wasted on wars in Afghanistan, Iraq, and elsewhere… for what?!
War usually generates enemies and it doesn’t bring peace and stability to U.S. or other countries. Isn’t a time to learn from the Bush’s administration mistakes, which destroyed the economy world wide?

Posted By A Berry

Posted by A Berry | Report as abusive

This is some good news. However, CIT filed for bankruptcy protection two days later. It is hard to see that progress is being made in providing small businesses with needed capital. It looks like the net effect of the recent changes is about zero. Factoring receivables, a service provided by CIT is often seen as money of last resort for small businesses, and when capacity for factoring has been reduced, it is not good. Small business owners will have to become even more creative in financing.

Posted by Martin | Report as abusive

is this all hype…simple how do we get access to this money

Posted by j locke | Report as abusive

Pls write your Reps in Congress asking for President Obama to keep his campaign promise to open up SBA “EIDLs” for small business. These are the same loans SBA writes after a disaster. No banks, little paperwork and SBA sets up centers in malls, community centers, etc. The loans are low interest and amortized over 30 years. This is what was promised. This is what we need. It is fast, cheap and effective. Bypass the banks, thank you. I spoke with a bank last week and they said they won’t write the loans because the banking regulators will give them a bad report if they do (SBA guarantees don’t matter). Direct SBA EIDLs (disaster loans) bypass this problem. You can educate yourself about this fabulous loan program at the SBA website. Congress has to appropriate the funds for this purpose.

Posted by Gail | Report as abusive

Small step to start helping build strong business credit, we have a long way to go.

Initial Underwriting Group

Posted by Rina | Report as abusive