Government gives helping hand to small businesses

January 11, 2010
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In February 2009, the U.S. government, under the American Recovery and Reinvestment Act, paid the origination fees for SBA 504 and 7(a) loans to aid small businesses. The program set aside enough money to pay for loan fees until the end of 2009. After that, the typical loan fees were to be reinstated.

“It really stimulated some SBA loan borrowing. The banks were more willing because they were taking away some of the initial costs in doing SBA loans,” said Sandra Bloem, president of the Economic Development Foundation. “It really stimulated lending to the small business sector throughout the nation. It was a little more successful than what they had thought it would be.”

In November, Bloem and many others received an unexpected e-mail stating that the money was about to run out and the deadline to submit loan applications was in a couple of days. This put the lenders in a mad dash to process all the loan applications prior to the deadline.

Once the funds ran out, there was a steep decrease in the amount of SBA 504 loan requests. Then, in December, the Senate voted to extend the funding until February 2010 — which means businesses need to get their requests in now, stressed Bloem.

“I would certainly encourage anybody who’s looking at borrowing money to do it very soon,” she said. “There’s something in front of Congress that is talking about re-funding those accounts that help waive the fees, but nothing has been approved yet.”

The funding helps both lending institutions and small businesses. While small businesses still have to pay hard costs such as lawyer fees, the origination fee, which is a percentage of the loan, is waived.

“The SBA also helps the banks to be able to stretch a little bit more than they’re comfortable with, because it either has an SBA guarantee when you’re talking about 7(a) loans, or on a 504, the SBA shares the risk,” she said.

“It takes some of the risk away from the banks and, as we all know, the banks have been a little more conservative as of late. This helps get some of those loans back out to the small business community.”

Bloem added that the rates on loans are also attractive.

“The rates are more attractive than bank financing, and there’s a lower down payment,” she said. “It helps take away some of the risk from the banks, and that’s what the bank industry is looking for now — a way to mitigate the risk.”

The rate for December was 5.46 percent as a fixed rate for 20 years.

While the program aims to put loans back in the hands of small businesses, the larger, more long-term goal is to create and sustain jobs.

“I will also say the reason the government put this in place is for job creation and job retention,” she said. “That’s really the main goal of the loan program.”

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