One of the challenges facing small businesses as a result of the recession has been getting the funding that they need. Some businesses were benefiting earlier this year from a program created to guarantee 90% of a small business loan. This way, lenders could take on less risk when issuing loans to borrowers. However, the program expired in May when money ran out. Monday, September 27, though, saw some action on the state of funding for small business. Congress extended the SBA program through the end of the year, and President Obama has signed it into law.
Borrower enhancements passed earlier were extended, and this bill (HR 5297) also adds a few more perks as well, providing help for businesses that really need the capital to keep things going. Some of the additions to the extension of the program, beyond a renewal of the 90% guarantee, include:
- SBA Express Loan limit raised from $300,000 to $1 million for a year.
- Fees for 7(a) loans and 504 loans are temporarily waived.
- Permanently increase the loan limit on 7(a) loans to $5 million (up from $2 million)
It is important to note that the 90% guarantee is a temporary extension that will expire with the year. The provision has been repeatedly extended, and each time it expires, a backlog of small business loans begins to build up as banks wait until another extension of the guarantee is provided. It will be interesting to see whether the government will, at some point, give in and just make the guarantee permanent on small business loans.
Will This Extension Truly Help?
Aside from the fact that SBA loans make up a small portion of the financing small businesses receive, there are other possible issues associated with the extension of the SBA program. Kevin O’Conner, writing in the Huffington Post, points out there are reasons that this fund meant to help small business get funding from small banks, offers three reasons that the bill will not result in economic stimulus:
- It fails to provide businesses with confidence, which is what we really need.
- Good businesses that borrow for growth have no need of such programs, since banks will lend to them anyway.
- The bill encourages bad businesses to borrow for losses, since the government — not the banks — is on the hook for most of the risk.
These are interesting points, and bear some though. However, even some good businesses are finding it difficult to borrow in this climate. In some cases, banks just aren’t willing to take the risk without some sort of guarantee. Which brings us back to the extension of a program that offers a hefty guarantee so that small business credit can be loosened up.
If you are a small business in search of a loan, you can look at a number of sources. While SBA loans are certainly helpful, you can also consider person to person lending, venture capital and even loans from family members that may be a little better off. In the current climate, it is in your best interest to consider your options, and look for programs that can help you. It’s an exciting time to be an entrepreneur, but you are going to have to work a little harder to fund your business.