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.
Community lenders get a mini bailout
It’s considerably less than the multi-billion bailout the commercial banking sector received as part of President Obama’s Recovery Act legislation, but battered community banking institutions will gladly take it.
On Monday, Treasury Secretary Tim Geithner pledged $90 million to help 59 Community Development Financial Institutions (CDFIs) in 26 states and Puerto Rico. CDFIs help companies, including many small businesses, in economically distressed urban, rural, and Native communities.
Geithner’s announcement comes on the heels of Federal Reserve Chairman Ben Bernanke’s speech that called for help for CDFIs at the Global Financial Literacy Summit in Washington, DC two weeks prior. Bernanke said, “while community development is a small part of our overall capital and credit markets, the Federal Reserve recognizes that these financial flows are critically important for many low- and moderate-income communities.”
In making his own announcement on CDFIs, Geithner said the increased funding “will help generate capital for small businesses, mortgage loans for homebuyers, and funding for affordable housing projects and other facilities in communities across the country.”
According to a forthcoming CDFI Data Project (“Providing Capital, Building Communities, Creating Impact – Fiscal Year 2007″) there are more than 1,000 CDFIs in the U.S., with a collective $25 billion in assets.
The government’s budget for the CDFI Fund this year is $107 million, a figure President Obama plans to more than double to $243.6 million for 2010.
Mark Pinsky, president and CEO of the Opportunity Finance Network (OFN) – a nationwide network of CDFIs – said while the government funds are appreciated, it represents a minuscule portion of the overall capital.
Small step to start helping build strong business credit, we have a long way to go.
Rina
Initial Underwriting Group