Is Obama is going to send out a Rescue Task force for Small Business?
As in the NY Times on March 15, 2009 ''It's a huge step in the right direction,'' Giovanni Coratolo, director of Small Business Policy at the U.S. Chamber of Commerce, said Saturday. ''In this economy, having the least amount of risk for banks will incentivize banks to lend to small businesses. A lot of small businesses will benefit from this.'' [http://www.nytimes.com/aponline/2009/03/15/washington/AP-Obama-Small-Businesses.html?hp]
So what are they referring to? SBA Loans and the way they are structured. Currently the US Government guarantees up to $20 billion in SBA Loans. But of these $20 billion, how many are being written? In 2009 we are on pace to write less than half of these loans, so how will guaranteeing more of these loans help the economy? It wont, there needs to be more that just saying they will guarantee more loans since much of the pool is not being used now.
The new administration is planning on buying up the slack? By Temporarily eliminating some upfront fees on some of the SBA loans and increasing the guarantee caps to the lenders for these Business Loans. Basically they are looking to off set some of the administrative costs and reduce the risk for the lenders of the SBA loans.
It is yet to be seen as to whether this a token gesture or an actual action plan for them we will be able determine this in a few months when we can calculate what type of effect this has had on small business being able to access these funds.
Since the majority of this plan is increasing guarantees, is it going to be enough to allow the lenders to reduce their underwriting guidelines to allow more small businesses to access these funds? Lets take a look. We need to make a few broad assumptions here, but lets say that we are currently experiencing a 20% default rate on the SBA Loans being written today. And lets say that the traditional SBA lender will accept a 5% default rate on their Business Loans. Will an increase of 5% toward the defaulted Business Loans have any real impact on the mindset of the risk allowance calculations? Not likely. There are more variables and figures to enter into this calculation, but I am sure you see the point here, it is a start, but it is not enough to motivate SBA Lenders to approve more loans.
On the bright side of things though, this is an initial attempt by Obama to help small business, something that has been a long time coming. As with the major corporations, there has been much negotiation and debate on what to do, so we will have to keep an eye on the progress and analyze the effect to determine future actions.
There are so many alternatives to SBA or bank loans today that are offered by Commercial Finance Brokers as they access to funds for Accounts Receivable Financing, Export Factoring, Purchase Order Finance, Commercial Equipment Loans and Commercial Real Estate Mortgages. Be sure to do you checking around into the various options available to you as there is a loan available for most circumstances if you have the right Finance Broker.
