Article: For SBA Loans, Stimulus Well Runs Dry

The Wall Street Journal
http://www.wsj.com/


For SBA Loans, Stimulus Well Runs Dry

By EMILY MALTBY

Two popular stimulus provisions that drew hundreds of banks back to the small-business lending arena ran out of funding Monday, setting the stage for a potential new credit squeeze for business owners.

The two provisions, passed as part of the Recovery Act, raised the maximum guarantee on Small Business Administration loans to 90% from 75%, and temporarily reduced or eliminated fees associated with the loans. The measures are widely credited with getting millions of dollars into the hands of small-business owners and making it more attractive for banks to lend during the downturn.

The SBA had anticipated that funding for the provisions, totaling $375 million, would run dry ahead of the provisions' scheduled 2010 expiration dates. Last week, the agency alerted lenders that, as of Monday, the guarantee would be lowered to pre-stimulus levels and the fees would be reinstated, according to SBA spokesman Jonathan Swain.

That created a mini-rush, prompting lenders to issue – over the course of the last week – more than $1 billion in SBA loans, he said. That amount exceeds monthly lending volumes in each of the first six months of the government's fiscal year. As of Monday's cut-off date, there were 282 applications still pending for stimulus loans, totaling $128.7 million. Those applications will be put on a waiting list, and will move forward if borrowers and lenders cancel previously approved loans, he said.

Meanwhile, lending experts anticipate a drop in SBA loan volume unless Congress moves quickly to allocate more funds to renew the stimulus provisions. Last month, the House voted to continue the measures until September 2011, although the legislation has not moved forward in the Senate.

"We absolutely need to extend it, as it has been the driver of loan volume," says Tony Wilkinson, president of the National Association of Government Guaranteed Lenders in Stillwater, Okla. "It is proven, it has worked, and we have gotten credit in hands of small businesses. If it's not extended, we fully expect to see a substantial decline in loan volume."

The SBA has pushed Congress for an extension of the stimulus provisions, and as a first goal wants them to remain in place until mid-February. That was when the 90% guarantee was originally slated to expire, had funding been sufficient. The lower fees were scheduled to expire next September.

"We have been having positive discussions with folks on the Hill and in the administration," Mr. Swain said. "We're hopeful they will understand that these programs are effective."

In a forum on small business lending last week, lenders, government administrators, and business owners discussed the best means of getting credit to small businesses. One proposal which is actively supported by President Obama, is to raise the cap on SBA loans. Cynthia Blankenship, past chairman of the Independent Community Bankers of America, noted during one of the discussion forums that raising the loan cap "is a good idea, but you'd have to raise guarantees" in order for it to be effective. That statement resonated with many of the lenders in attendance.

209 Recovery Act - ARC Loan Program

About the ARC Loan Program

ARC loans can be used to make payments of principal and interest, in full or in part, on one or more existing, qualifying small business loans for up to six months. ARC loans provide an immediate infusion of capital to small businesses to assist with making payments of principal and interest on existing debt. These loans allow borrowers to redirect cash flow from making loan payments to investing in their businesses, to help sustain the business and retain jobs. For example, making loan payments on existing loans with proceeds from an ARC loan can allow a business to focus more funds on core operations, such as buying inventory or making payroll.
ARC loans are interest-free to the borrower, carry a 100 percent guaranty from the SBA to the lender, and require no fees paid to SBA. Loan proceeds are provided over a six-month period and repayment of the ARC loan principal is deferred for 12 months after the last disbursement of the proceeds. Repayment can extend up to five years.

The best candidates for ARC loans are small businesses that in the past were profitable but are currently struggling, yet have been making loan payments or are just beginning to miss loan payments due to financial hardship. FAQs for Lenders and Borrowers.

ARC loans are made by commercial lenders who are SBA participants. The SBA will pay these banks a monthly interest rate throughout the term of the loan. Lenders can find more information here. Non-SBA lenders can easily become SBA participants by working with their nearest SBA district office. Businesses interested in applying for an ARC loan should first contact their current lender.

ARC loans will be offered by some SBA lenders for as long as funding is available or until September 30, 2010, whichever comes first.

www.recovery.gov

Federal stimulus trickles down

Federal stimulus trickles down
Opinions mixed on benefits to small business

Sat. April 25 - 2009

Peter Schnitzler - pschnitzler@ibj.com
IBJ staff


There’s a smorgasbord available for small businesses in the federal stimulus. The trick is figuring out how to get a plate.

Plenty of local experts are serving up access to the buffet. And some entrepreneurs are digging in. But others consider the stimulus warmed-over leftovers.

“For high-tech, high-growth businesses of the 21st century, there’s nothing in the stimulus bill that helps us,” said Bob Compton, a longtime investor in local businesses who now lives in Memphis, Tenn. “For low-growth and failed businesses of the 20th century, that’s where the bulk of the money is going.”

In February, President Obama signed the $787 billion American Recovery and Reinvestment Act into law. Although some of the stimulus package has begun to trickle down, many small-business owners still don’t know what’s available....

...... Click HERE to view the rest of the article.

American Recovery and Reinvestment Act of 2009

-Please visit www.recovery.gov for more information.

The American Recovery and Reinvestment Act contains a package of loan fee reductions, higher guarantees, new SBA programs, secondary market incentives, and enhancements to current SBA programs that will help unlock credit markets and begin economic recovery for the nation’s small business sector.

The bill provides $730 million to SBA and makes changes to the agency’s lending and investment programs so that they can reach more small businesses that need help.

“The tax incentives and credit stimulus elements of the Recovery Act will truly help small business owners affected by the credit crunch, and will provide financing opportunities to help them create new jobs in their communities,” said Acting SBA Administrator Darryl K. Hairston.

Overview of the American Recovery and Reinvestment Act of 2009 (Recovery Act)The American Recovery and Reinvestment Act of 2009 (Recovery Act) was signed into law by President Obama on February 17, 2009. It is an unprecedented effort to jumpstart our economy, create or save millions of jobs, and put a down payment on addressing long-neglected challenges so our country can thrive in the 21st century.

The Act is an extraordinary response to a crisis unlike any since the Great Depression, and includes measures to modernize our nation's infrastructure, enhance energy independence, expand educational opportunities, preserve and improve affordable health care, provide tax relief, and protect those in greatest need.

View the Recovery Act Legislation.

Implementing the American Recovery and Reinvestment Act of 2009The American Recovery and Reinvestment Act will have a significant impact on small businesses and on the credit crunch, providing tax incentives and financing opportunities that will help them create jobs.

The American Recovery and Reinvestment Act makes SBA part of the solution, providing it with specific tools to make it easier and less expensive for small businesses to get loans, give lenders new incentives to make more small business loans, and help unfreeze the secondary markets to boost liquidity in the credit markets.

More details on implementation will be coming over the next few weeks.

The bill provides $730 million to SBA and makes changes to the agency’s lending and investment programs so that they can reach more small businesses that need help. The funding includes:

$375 million for temporary fee reductions or eliminations on SBA loans and increased SBA guaranteed shares, up to 90 percent for certain loans

$255 million for a new loan program to help small businesses meet existing debt payments

$30 million for expanding SBA’s Microloan program, enough to finance up to $50 million in new lending and $24 million in technical assistance grants to microlenders

$20 million for technology systems to streamline SBA’s lending and oversight processes

$15 million for expanding SBA’s Surety Bond Guarantee program

$25 million for staffing up to meet demands for new programs

$10 million for the Office of Inspector General

SBA Press Release