Obama to unveil plan to help small businesses
Program includes $730 million to reduce small-business lending fees

updated 7:26 a.m. PT, Sun., March. 15, 2009
WASHINGTON - Amid misgivings over his spending blueprint, President Barack Obama has decided to provide billions of dollars in federal lending aid aimed at struggling small business owners.

The broad package of measures to be announced Monday includes $730 million from the stimulus plan that will immediately reduce small-business lending fees and increase the government guarantee on some Small Business Administration loans to 90 percent. The government also will take aggressive steps to boost bank liquidity with more than $10 billion aimed at unfreezing the secondary credit market, according to officials briefed on the plan who demanded anonymity to avoid pre-empting the president's announcement.

"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.

 
SENATE: SBA Provisions of Conference Stimulus Bill
Committee on Small Business and Entrepreneurship
February 13, 2009
SBA PROVISIONS OF CONFERENCED STIMULUS BILL


Background: The conferenced stimulus bill appropriates $730 million to improve existing SBA programs and create new initiatives that will address the current economic crisis. Below is a brief description of the most significant provisions.

Temporary SBA Fee Relief: As a result of the financial crisis and the recession, small business lending in the SBA's flagship loan programs -- 7(a) and 504 programs -- is in a freefall. The bill allocates $375 million to allow for temporary waivers or reductions in the fees the SBA charges to lenders and borrowers in the 7(a) and 504 loan programs. When determining the amount and structure of the waivers/reductions, the bill requires the SBA to give borrowers and smaller banks priority in receiving fee relief.

Temporary Increase in SBA Guarantee Levels: The bill allows the SBA to on -- a case by case basis -- temporarily raise the guarantee level (up to 90%) for 7(a) loans, other than loans made through the SBA Express program. Currently, the maximum guarantee levels are 75% for loans over $150,000, and 85% for loans of $150,000 or less. The increased guarantee will provide a higher level of protection for risk-weary small business lenders who have tightened their lending standards considerably in the wake of the credit crunch.

Business Stabilization Program: The bill will also help banks provide relatively small, short-term loans to small business borrowers experiencing immediate financial hardship. Specifically, the new program will temporarily allow the SBA to (i) fully guarantee "bridge-like" loans that cannot exceed $35,000, and (ii) fully subsidize a small business borrower's interest payments on the bridge loan. A borrower does not have to begin repaying the bridge loan until 12 months after receiving it, and the loan must be paid in full within 5 years. [Note: This was a House proposal. Although we helped formulate it, and we believe it addresses a significant problem for many small business borrowers, the program may not be structured in a way that will allow it to achieve its intended purpose.]

Microloans: The bill appropriates $30 million for the SBA's microloan program, with $24 million dedicated to microloan technical assistance, and $6 million for new microloans. By way of background, the microloan program provides very small loans to qualifying micro-businesses (typically businesses with less than 10 employees) by making funds available to non-profit, community-based lenders -- called intermediaries -- which, in turn, make loans to eligible micro-borrowers in amounts up to $35,000. Borrowers are also provided with corresponding technical assistance to ensure that the loan proceeds are used effectively.

SBA Secondary Market Stimulus: Many SBA lenders -- in both the 504 and 7(a) programs -- rely on a secondary market for SBA loans. These lenders sell a portion of the SBA loans they have already made to broker-dealers. The sales provide lenders with an important funding stream that allows them to extend additional SBA loans. The broker-dealers, in turn, pool the loans and sell them to investors in the secondary market. In the wake of the subprime mortgage crisis, the secondary markets for SBA loans have frozen. To thaw the 7(a) secondary market, the bill permits the SBA to make loans to broker-dealers. These loans would then be used by the broker-dealers to finance the purchase of additional SBA loans from banks. Another provision in the bill will help unfreeze the secondary market for "first lien" loans in the 504 program by guaranteeing pools of these loans, thus making them more attractive to risk-averse investors who have essentially abandoned all mortgage-backed securities.

Small Business Venture Capital Stimulus: The bill attempts to stimulate the flow of venture capital in the SBA's Small Business Investment Company (SBIC) program by simplifying the formula used to determine the maximum amount of SBA financing (a/k/a "leverage") available to SBICs. Among other improvements to the SBIC program, the bill also makes "transition" leverage available to commonly-controlled SBICs, which will allow successful SBICs to operate a second or third fund, while maintaining the safeguards necessary to mitigate the SBA's risk in the investment.