Small Business Loan Update: Stimulus Bill Helps Businesses if They Cannot Pay Their Loans

As we continue to sift dutifully through the over 1,000 pages of the stimulus bill (American Recovery and Reinvestment Act of 2009), there is one provision that is not getting much attention, but could be very helpful to small businesses. If you are a small business and have received an SBA loan from your local banker, but are having trouble making payments, you can get a "stabilization loan". That's right; finally some bailout money goes into the hands of the small business owner, instead of going down the proverbial deep hole of the stock market or large banks. But don't get too excited. It is limited to very specific instances and is not available for vast majority of business owners.

But first let us see if there are any programs out there providing funds to small businesses. Unless a business has a loan, it will not get relief from such a stabilization loan after default. There is a loan program out there and SBA lenders are actually making loans currently: the Community Express Loan Program. This gives unsecured small business loans between $5,000 and $50,000 with very little paperwork, answers typically in two days, interest rates presently at 7.75%, funding and two weeks, and monies wired directly to your business account. There are still lenders participating in this program, although Congress has failed to make the program permanent and still has a 10% cap on the number of loans. Enter the Obama stimulus bill. Let us look how it affects this program and small business lending as a whole.

There are some news articles that boldly claim the SBA will now provide relief if you have an existing business loan and are having trouble making the payments. This is not a true statement and needs to be clarified. As seen in more detail in this article, this is wrong because it applies to troubled loans made in the future, not existing ones.

Here is how it works. Assume you were one of the lucky few that find a bank to make a SBA loan. You proceed on your merry way but run into tough economic times and find it hard to repay. Remember these are not conventional loans but loans from an SBA licensed lender that are guaranteed for default by the U.S. government through the SBA (depending upon the loan, between 50% and 90%). Under the new stimulus bill, the SBA might come to your rescue. You will be able to get a new loan which will pay-off the existing balance on extremely favorable terms, buying more time to revitalize your business and get back in the saddle. Sound too good to be true? Well, you be the judge. Here are some of the features:

- Does not apply to loans taken out before the stimulus bill. Only for loans after its enactment.

- Does it apply to SBA guaranteed loans or non-SBA conventional loans as well? We don't know for sure. This statute simply says it applies to a "small business concern that meets the eligibility standards and section 7(a) of the Small Business Act" (Section 506 (c) of the new Act). That contains pages and pages of requirements which could apply to both types of loans. Based on some of the preliminary reports from the SBA, it appears it applies to both SBA and non-SBA loans.

- These monies are subject to availability in the funding of Congress. Some think the way we are going with our Federal bailout, we are going be out of money before the economy we are trying to save.

- You don't get these monies unless you are a viable business. Boy, you can drive a truck through that phrase. Our friends at the SBA will determine if you are "viable" (imagine how inferior you will be when you have to tell your friends your business was determined by the Federal government to be "non-viable" and on life support).

- You have to be suffering "immediate financial hardship". So much for holding out making payments because you'd rather use the money for other expansion needs. How many months you have to be delinquent, or how close your foot is to the banana peel of complete business failure, is anyone's guess.

- It is not certain, and commentators disagree, as to whether the Federal government through the SBA will make the loan from taxpayers' dollars or by private SBA licensed banks. In my opinion it is the latter. It carries a 100% SBA guarantee and I would make no sense if the government itself was making the loan.

- The loan cannot exceed $35,000. Presumably the new loan will be "taking out" or refinancing the entire balance on the old one. So if you had a $100,000 loan that you have been paying on time for several years but now have a balance of $35,000 and are in trouble, boy do we have a program for you. Or you might have a smaller $15,000 loan and after a short time need help. The law does not say you have to wait any particular period of time so I guess you could be in default after the first couple of months.

- You can use it to make up no more than six months of monthly delinquencies.

- The loan will be for a maximum term of five years.

- The borrower will pay absolutely no interest for the duration of the loan. Interest can be charged, but it will be subsidized by the Federal government.

- Here's the great part. If you get one of these loans, you don't have to make any payments for the first year.

- There are absolutely no upfront fees allowed. Getting such a loan is 100% free (of course you have to pay principal and interest after the one year moratorium).

- The SBA will decide whether or not collateral is required. In other words, if you have to put liens on your property or residence. My guess is they will lax as to this requirement.

- You can get these loans until September 30, 2010.

- Because this is emergency legislation, within 15 days after signing the bill, the SBA has to come up with regulations.

The real question is whether a private bank will loan under this program. Unfortunately, few will do so because the statute very clearly states that no fees whatsoever can be charged, and how can a bank make any money if they loan under those circumstances. Sure, they might make money in the secondary market, but that is dried up, so they basically are asked to make a loan out of the goodness of their heart. On a other hand, it carries a first ever 100% government guarantee so the bank's know they will be receiving interest and will have no possibility of losing a single dime. Maybe this will work after all.

But there is something else that would be of interest to a bank. In a way, this is a form of Federal bailout going directly to small community banks. They have on their books loans that are in default and they could easily jump at the chance of being able to bail them out with this program. Especially if they had not been the recipients of the first TARP monies. Contrary to public sentiment, most of them did not receive any money. But again, this might not apply to that community bank. Since they typically package and sell their loans within three to six months, it probably wouldn't even be in default at that point. It would be in the hands of the secondary market investor.

So is this good or bad for small businesses? Frankly, it's good to see that some bailout money is working its way toward small businesses, but most of them would rather have a loan in the first place, as opposed help when in default. Unfortunately, this will have a limited application.

Wouldn't it be better if we simply expanded our small business programs so more businesses could get loans? How about the SBA creating a secondary market for small business loans? I have a novel idea: for the moment forget about defaults, and concentrate on making business loans available to start-ups or existing businesses wanting to expand.

How about having a program that can pay off high interest credit card balances? There is hardly a business out there that has not been financing themselves lately through credit cards, simply because banks are not making loans. It is not unusual for people to have $50,000 plus on their credit cards, just to stay afloat. Talk about saving high interest. You can imagine how much cash flow this would give a small business.

We should applaud Congress for doing their best under short notice to come up with this plan. Sure this is a form of welcome bailout for small businesses, but I believe it misses the mark as to the majority of the 27 million business owners that are simply looking for a loan they can repay, as opposed to a handout.

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Sue Malone is a small business advocate, consultant, and the nations #1 provider of unsecured SBA Community Express cash flow loans(start-up and existing). Email:smalone165@aol.com http://www.StrategiesForSmallBusiness.com Phone:(925)899-8449.

Small Business Loan Bailout? Stimulus Bill Pumps 730 Million into SBA to Help Small Businesses

Cope For those small business owners who think they were ignored in the new stimulus bill (American Recovery and Reinvestment Act of 2009), think again. While the debate continues to unravel as to "who gets what and whether it is enough", one thing is certain: more money is coming in the direction of small businesses through the U.S. Small Business Administration (SBA). Remember, this is the agency responsible for the outreach, licensing, and implementation of, you guessed it, money into the pockets of small businesses. This is done through private licensed lenders who have agreed to join the SBA program. In other words, if your local community bank has a commercial loan department, it might very well have a SBA department which makes these loans. They are called SBA loans because the Federal government will reimburse, to a certain percentage, defaulted loans, thereby giving incentive for the private banks to loan more money. Net effect--more loans will be available for small business concerns.

Before we talk about how much more money is available to the SBA under the stimulus package, let's look at the current status of one of the popular SBA loan programs. There is a loan program out there and SBA lenders are actually making loans currently: the Community Express Loan Program. This gives unsecured small business loans between $5,000 and $50,000 with very little paperwork, answers typically in two days, interest rates presently at 7.75%, funding and two weeks, and monies wired directly to your business account. There are still lenders participating in this program, although Congress has failed to make the program permanent and still has a 10% cap on the number of loans. Enter the Obama stimulus bill. Let us look how it affects this program and small business lending as a whole.

So should we be excited by the stimulus package? Isn't it all too customary in a new spending bill for a government agency to receive more funds? Not at all as to the SBA. During the Bush Administration tenure, they could easily have renamed the agency the ISBA (Ignore Small Business Association). As they were making "sound bite" statements to the press of how they were helping small business, they were arrogantly trying to dismantle it, or when they were in a better mood, just cutting the budget.

The point is we have a new administration that actually likes small businesses. Remember these are additional monies over and above the SBA's current budget. As we all know, budgets are determined in approximately March of each year (assuming Congress has the good graces to agree) to be used for the next year. The SBA has already received their budget. This is whipped cream placed on the top of that small business cake.

And we are not talking about token amounts here. Here is how the additional monies are broken down:

1. 375 million for temporary fee reductions or elimination on SBA loans and increased SBA loan guarantees, up to 90% for some loans. Translation: When a borrower gets a SBA loan they pay a SBA loan guarantee fee which goes to Washington and used as a war chest to pay banks if there has been a default. That guarantee fee, depending upon the loan, is currently between 50% and 85%. There is a possibility that some loan programs can now be increased to a whopping 90% guarantee. If a borrower no longer pays these fees, the money has to come from somewhere, and in this case it is taxpayers' money which is subsidizing those fees.

2. 255 million for a new loan program to help small businesses meet existing debt payments. Translation: You have a loan secured by fixed assets or real estate and want to refinance it, either to lower payments or put more money in your pockets for expansion.

3. 30 million for expanding SBA's Micro Loan Program, with $6 million to help finance new lending and 24 million for technical assistance grants to Micro lenders. Translation: Under the Microloan program, the Federal government loans blocks of money to the Microloan lenders who then reloan it, at higher rates, to the deserving communities and small businesses and usually collateral is required.

4. 20 million for streamlining the SBA lending and oversight process with new technology. Translation: The streamlining process will make it faster and more efficient to process loans and oversight is to monitor SBA licensed lenders--make sure they are acting for the benefit of small businesses and complying with the program guidelines.

5. 15 million for expanding SBA's surety bond guarantee program. Translation: If you are a building contractor and have to take out a performance or payment bond on a project, you need substantial assets to secure the bond. This will help getting your hands on that needed bond and be able to secure the contract.

6. 25 million for staffing as to the new programs.

7. 20 million for the Office of Inspector General. Translation: To inspect and audit the licensed SBA lenders.

Although one could make the argument this new law is "too little too late", we have to give our current administration a chance to do good things with this fresh money. And don't forget the mindset of the SBA lender. Although they are not as wildly quixotic as stock market speculators, their purses open and close based upon the mood of the country. We want them to be as comfortable as possible when we walk toward them for money.

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Sue Malone is a small business advocate, consultant, and the nations #1 provider of unsecured SBA Community Express cash flow loans(start-up and existing). Email:smalone165@aol.com http://www.StrategiesForSmallBusiness.com Phone:(925)899-8449.

Commercial Loans

Commercial Loans - Are We All in This Together?

In the Working Capital Journal and elsewhere, there have been many reports so far indicating that only a small number of financial companies appear to be acting as if they truly understand that "We're all in this together". A special concern by many observers is that the largest banks (essentially those receiving federal funds recently to assist with their troubled financial operations) are not acting in this manner at all.

This has resulted in two major problems for commercial borrowers:

(1) The banks receiving bailout funds have failed (so far) to resume a normal lending pattern for commercial finance funding even though the funds have supposedly been provided to do just that. These same banks also seem to be unable to report to anyone how they are in fact spending billions of dollars. (2) To make matters even worse, most of these banks are actually decreasing their commercial real estate loans and commercial loans by cancelling business lines of credit or recalling outstanding loans.

There has already been much public backlash in reaction to inappropriate banking bonuses and spending. So far that has primarily taken the form of criticism and questions about how banks are allocating the financial resources largely subsidized by the taxpayers providing bailout funding. As it becomes more obvious that the action of many banks is impeding the recovery from economic chaos, it is likely that most business owners will choose to obtain their business finance funding from a lending source that has helped rather than hindered financial recovery efforts.

As always, business owners cannot typically afford to wait for government and external action to resolve problems like those described above. Given the facts that many banks have exited or reduced commercial lending activities, business owners should attempt to find alternative sources for working capital loans and commercial loans.

With appropriate help from a commercial financing expert, commercial borrowers will be able to identify which commercial lenders have been acting like responsible corporate citizens and business neighbors. It is unfortunately common to find that most bigger banks have eliminated new working capital financing and commercial mortgage loans. Although they are proving to somewhat difficult to identify and locate, there are commercial lenders actively making new commercial loans.

Although the discussion above focused primarily on the questionable lending activities of many larger banks, an equally problematic commercial financing situation is that very few local (and smaller) banks have resumed normal business lending. In many cases this means that a normally reliable and familiar source for working capital loans is no longer a viable business funding option. For the most part, local and regional banks simply do not have sufficient capital for new commercial loans.

In addition to business owners seeking alternative commercial funding sources, many commercial borrowers will now discover new financing choices such as business cash advance programs. Under most circumstances, business cash advances are provided by business lenders other than commercial banks. As a result, these working capital funding sources are often proving to be more effective than traditional banks of any size in providing reliable commercial financing. In the end, business owners should hopefully find that their business financing situation will improve by choosing lenders which display the appropriate attitude of "We're all in this together".


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Learn how to avoid mistakes for commercial loans and commercial real estate loans - Steve Bush is a working capital loans expert => AEX Business Cash Advances - Commercial Mortgages - The Working Capital Journal - http://working-capital.squarespace.com

Business Finance Funding Advice and Commercial Financing Help

The rapidly-changing environment for business finance funding is likely to produce a series of new problems for business owners. There have been some unexpected and disappointing responses by business lenders to recent economic circumstances. The Working Capital Journal is a regularly-updated information resource for commercial borrowers to review in their attempt to keep up with the increasing challenges confronting them in seeking commercial financing. Some of the most important recent findings are noted below.

For many years, the working capital finance industry has operated primarily on a local and regional basis. In response to cost-cutting that has permeated many industries, there has been a consolidation that has resulted in fewer effective commercial lenders throughout the United States. This has happened in a relatively short period of time, and most business owners have been understandably confused about what this might mean for the future of their commercial financing efforts.

Of course, for some time there have been ongoing complex problems for commercial borrowers to avoid when seeking commercial loans. But what has produced a new set of business finance funding problems is that we appear to be entering a period which will be characterized by even more uncertainties in the economy. Previous rules and standards for commercial financing and working capital finance are likely to increasingly change quickly, with little advance notice by business lenders.

With the current realization that substantial changes are likely in the near future for commercial finance funding throughout the United States, business owners should make an extended effort to understand what is happening and what to do about it. At the forefront of these efforts should be a review of what actions commercial lenders have already taken in recent months. The Working Capital Journal is one prominent example of a free public resource that will facilitate a better understanding of the responses by business lenders to recent economic circumstances.

Publicizing actions being taken by business lenders throughout the United States will contribute to at least two goals, both of which are likely to prove helpful to most small business owners: (1) To highlight controversial bank-lender tactics with a view toward reducing or eliminating questionable lending practices. (2) To help business owners prepare for commercial finance funding changes. To assist in this effort, sources such as The Working Capital Journal are encouraging business owners to report and describe their own experiences so that they can be shared with a broader audience that might benefit from the information. Some of the most significant commercial financing changes reported so far by commercial borrowers involve working capital loans, commercial construction financing and credit card financing. Predatory lending practices involving credit cards have been actively reported by numerous business owners and other individuals. Some specific businesses such as restaurants are having an especially difficult time in surviving recently because they have been excluded from obtaining any new business financing by many banks.

As reported by The Working Capital Journal, one of the few bright spots in business finance funding recently has been the continuing effectiveness of business cash advance programs to obtain working capital quickly. For most businesses accepting credit cards, this commercial financing approach should be actively considered. Because most banks appear to be doing a terrible job of providing commercial loans and other working capital finance funding in the midst of recent economic and financial uncertainties, business cash advances are literally saving the day for many small business owners. For example, as noted above, restaurants are virtually unable to currently obtain commercial finance funding from most banks. However, if a restaurant accepts credit cards in their business operations, they are likely to be able to obtain needed cash from merchant cash advances and credit card factoring.


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Learn how to avoid mistakes for commercial financing and commercial real estate loans - Steve Bush is a working capital finance expert => AEX Business Finance Funding and Commercial Loans - http://aexcommercialfinancing.com

Small business

small business loand and the bottom of the ocean

For most small business owners, the current ineffective process for obtaining small business loans and commercial mortgages has become frustrating and confusing. Normally reliable banks and bankers have suddenly become undependable and non-responsive to the practical needs of commercial borrowers. For most observers, it is remarkable to see how differently the public is suddenly treating the banking industry. To update a Ronald Reagan quote about government solving problems, the current perspective might be "Banks are not the solution to our problem, they ARE the problem."

Most of the negative public perception (so far) is directed at the larger banks which collectively have already absorbed hundreds of billions of dollars in federal bailout payments and loan guarantees. Even bank employees seem to feel this way. When a woman working for one of these banks lost her job in New York recently, she quickly described her relief at not having to tell people that she worked for the bank anymore.

It does appear that bankers have become the new lawyers in terms of public ridicule and anger directed toward them. There was a joke making the rounds a few years ago about lawyers that has been modified to include a reference to bankers. What do you call 10 lawyers on the bottom of the ocean? (A good start.) Substituting "bankers" for "lawyers" will readily provide a contemporary cultural reference about how far bankers have fallen in the public eye.

The many good bankers who have done absolutely nothing to deserve this ridicule have their work cut out for them to restore a tarnished image. One effective strategy for improving their public standing would be for the good bankers to be candid in their public criticism of the bad bankers. It seems increasingly clear that some banks and bankers have acted irresponsibly for many years. One of the best sources to judge and correct this misbehavior is likely to be other bankers. It will be refreshing to see the truly innocent bystanders in the banking community speak out publicly about those who caused the economy to implode in the first place.

Not to be overlooked in all of this is the practical need for commercial borrowers to find reliable sources for small business loans, working capital financing and commercial mortgages. This will be more difficult than it might initially appear for several reasons.

First, many small business owners have probably been accustomed to dealing with the same bank and banker for many years. There are issues of friendship and loyalty that could cause some businesses to delay longer than they should in replacing their bank.

Second, even after a commercial borrower decides that a change is necessary, it will not be an easy matter to find an effective source for business finance services. In most cases, it will be prudent for business owners to look beyond their local area in the search for better providers of commercial finance funding.

Third, it will require time for business owners to adjust to the fact that some of the best sources for traditional working capital financing are not banks at all. For commercial financing services such as business cash advance programs, banks have played a smaller and smaller role even before the recent economic volatility.

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Learn how to avoid mistakes for commercial loans and commercial real estate loans - Steve Bush is a working capital finance expert => AEX Commercial Finance Funding and Commercial Mortgages - The Working Capital Journal - http://working-capital.squarespace.com