Dear Professor Bruce: As the owner of a struggling small business, I've had trouble securing a loan, but I heard that President Obama's plans for small businesses include unlocking credit. What does this mean exactly and how will it affect me?
Answer: According to the U.S. Small Business Administration, the Recovery Act addresses small businesses' lending problems as well as key investment and contracting issues. The bill aims to help leverage investment capital to reach more small companies.
Major provisions include:
-- 90 percent guarantee. The bill allows SBA to raise its loan guarantee to as much as 90 percent. At present, SBA can guarantee as much as 85 percent on loans up to $150,000 and up to 75 percent on loans greater than $150,000. The 50 percent guarantee on SBA Express loans would remain unchanged. Increasing the SBA guarantee percentage, and temporarily eliminating fees associated with these loans, should encourage lenders to extend more capital to small businesses.
-- America's Recovery Capital (ARC) Loans. This temporary program, funded at $255 million, will offer deferred-payment loans 100 percent guaranteed by SBA for up to $35,000. It's for viable small businesses that need help making up to six months' worth of payments on existing, qualifying loans not backed by SBA.
-- Microloans. The bill expands SBA's Microloan program, which provides loans of up to $35,000 -- paired with technical assistance -- to startup, newly established or growing small businesses.
-- Refinancing. The bill also gives SBA the power to use the 504 Certified Development Co. program to refinance existing loans for fixed assets, providing fresh support for small-business expansion. This change should help business owners expand current development projects and create jobs in their communities.
"The plan outlined by President Obama is a positive step in the right direction," says Chris Reilly, president of CIT Small Business Lending, "but it will need to be implemented in a timely manner to achieve its key objective: increasing lending to small businesses. Lenders have been shut out of the secondary market for the past six months, and providing liquidity to this market is critical to returning the flow of credit to small businesses."
See www.sba.gov or www.smallbizlending.com.
(Bruce Freeman, The Small Business Professor, is president of ProLine Communications, a marketing and public-relations firm in Livingston, N.J., and co-author of "Birthing the Elephant" (Ten Speed Press). E-mail him at Bruce(at)SmallBusinessProf.com.)
(Distributed by Scripps Howard News Service, http://www.scrippsnews.com)
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