Businesses hoping for SBA loan help may be left out in the cold. Image: Flickr / MoneyBlogNewz / CC-BY

The Small Business Administration has finally come out with the rules for a heavily anticipated new lending program. The program is supposed to offer help to businesses facing foreclosure of their buildings. The restrictions on the loans, however, are cutting out most businesses that could benefit.

New SBA lending program

In January of this year, businesses and business loan advisers started looking to the Small Business Administration for lending program rules. The program was passed by Congress in 2010, and the SBA has been working on implementing the rules since then. On Thursday, Feb. 24, the rules were officially announced. The program will offer new loans for businesses with mortgages coming due within the next 24 months and will cover underwater mortgages. However, the owner of the business will be required to put 10 percent of the loan amount on the line in cash or equity of another property.

Concerns about limitations of SBA program

The SBA lending program is intended to help businesses on the brink of foreclosure. Business watchers, however, are concerned that the limitations of the lending program could cut out so many businesses that it will be practically ineffective. The rules cut out businesses that already have short-term SBA mortgage loans, businesses that do not have enough equity or cash for the down payment and businesses that cannot pay the additional 1 percent fee. The SBA claims that these restrictions are to ensure that businesses that are truly on the edge of shutting down, but viable, get the most help first.

Opening up small business loans

Getting small businesses the help they need to stay open is a tricky challenge, especially because payday loans are generally too small to help businesses. Some businesses are going to fail, bad economy or not. Sorting out which businesses in Irving, Texas or Anywhere, USA, have a chance of succeeding is the first challenge. Ensuring that the government doesn’t loan $15 billion to businesses that can’t pay it back is also tough. The hope is, though, that the SBA is able to offer help without cutting legitimate businesses in need.

Source

LA Times

Small businesses are waiting for regulations to be written so they can apply to refinance their property. Image: Flickr / MoneyBlogNewz / CC-BY

The process of putting a new law into practice can sometimes take a while. A new two-year Small Business Administration program is taking longer than usual. With one-quarter of the available time already gone, the program has yet to get rules or a process.

SBA refinancing program

During late 2010, a new Small Business Administration refinancing program was passed by Congress. The program was intended to last two years. The program would support the refinancing of business property debt. Small businesses are facing balloon payments on the relatively short-term loans on their businesses. The refinancing program would help remove balloon payments and reduce mortgage payments for struggling businesses. The program is written to last for 24 months only.

Waiting for new rules on refinancing

The 24-month SBA refinancing program has been law for the last six months. In those six months, however, the SBA has not yet written rules for the program. The rules and regulations for the program must be written before loans can be offered. Even though the rules and regulations for the program have not yet been written, the two-year clock on the program has already started running out. This means that once rules are written, the program could only have 16 months to distribute and back loans. While business leaders have indicated they appreciate the SBA taking time to write the regulations right, they are also frustrated with the quickly expiring timeline.

Businesses already applying

Though the Small Business Administration has yet to trip the switch on the refinancing program, businesses are applying. Everywhere from Baltimore, Md., to San Fransisco, Calif., businesses are turning in applications. These “conditional” applications cannot be approved until the SBA writes regulations for who may or may not qualify for these loans. These applications will be processed first when the loan rules are finally written.

Source

Knox News

The Small Business Administration is starting two new programs intended to increase small loan lending. Image: Flickr / MoneyBlogNewz / CC-BY

On Feb. 15, the Small Business Administration will be expanding lending programs. Small Loan Advantage and Community Advantage are both programs aimed at increasing lending to very small businesses. Both programs increase the percentage of the loan the government will guarantee.

SBA’s Small Loan Advantage program

The Small Business Administration is a government-supported program intended to help small businesses grow and expand. Many small businesses that have been asking for less than $250,000, however, have had trouble finding banks willing to lend to them. The amount of time, money and effort it takes to underwrite an SBA loan doesn’t feel “worth it” for banks to lend to small businesses. The Small Loan Advantage program will guarantee 75 percent of loans up to $150,000 and 85 percent of loans between $150,001 and $250,000. The hope is that these guarantees will encourage large banks to make small loans to businesses.

Community Advantage through the SBA

The SBA 7(a) Community Advantage program is aimed at increasing the number of lenders that serve minority and underserved groups. The program will certify “mission-focused community institutions” as SBA lenders. The goal of this new program is to create new lending institutions that are not traditional banks. Groups in Texas, Louisiana and other traditionally under-lent groups are targeted. The SBA will start accepting applications for these “community institutions” on Feb. 15.

The basics of SBA lending

SBA lending, through the traditional program, Small Loan Advantage or Community Advantage, is a facet of traditional lending. Banks underwrite the loans and distribute the loans the same way they would traditional loans. The difference is that the federal government backs these loans, meaning that they can be as easy as bad credit loans or no fax payday loans for some businesses.

Sources

Biz Journals
Business Wire

To get the funding they need, small businesses must rely on the only credit left. Image from Wikimedia Commons.

Contrary to popular belief, there is still credit for small businesses to obtain. Unfortunately, the credit they can obtain isn’t in the form of a business loan from a bank or the Small Business Administration as much anymore.  These days, more small businesses are having to rely on credit cards.  A lot of funding that used to be readily available for small businesses just isn’t there anymore, and unless you’re running a Fortune 500 company, it’s hard to get the help you need.

Small business credit cards booming

According to CNN Money, more small business owners are having to rely on their credit cards to get the funding they need.  Many who apply for business loans are getting denied, but getting approved instead for a credit card.  The first quarter of 2010 saw a reduction of $40 billion in lending to small businesses, which is the lowest level since 2008.   Less than half of small businesses looking for funding in 2009 were actually able to secure a loan of any sort, and as of June of this year, the portion of the stimulus package that was dedicated to small business lending lapsed into oblivion.

What is in the way?

The normal way a small business gets a loan to get off the ground, or help them expand, is through either a small or mid-size bank.  There is also the Small Business Administration.  However, smaller banks do not have as much liquidity as they used to, and the SBA stimulus funding has run dry.  When a business owner applies for a loan, to buy equipment or start a company, they can pledge certain things as collateral, like property.  Since property isn’t as valuable anymore, less credit is going to be made available. They are forced then to rely on the one source of credit that’s readily available, which is credit cards.  If a piece of property isn’t as valuable anymore, it’s hard for a business to get mortgage loan modification to free up cash.

Someone is reaping all the benefits

An installment loan from the SBA includes a minimum term of seven years.   Credit cards, on the other hand, can take forever to pay off if one gets locked into making only minimum payments.  The difference between the credit card that John or Jane Q. Public has and a business owner has is that a business credit card is not covered by the CARD Act.  The main source of funding for credit cards is the biggest banks.  Bank of America, JP Morgan Chase, Citibank and Wells Fargo all lend huge amounts of money on credit cards.   Wait a moment; who was it that got the most bailout funds again?

Further Reading

CNN Money

http://money.cnn.com/2010/07/14/smallbusiness/bernanke_lending_credit_cards.fortune/

NY Times piece about SBA loans

http://boss.blogs.nytimes.com/2010/07/11/s-b-a-lending-plunged-in-june/

The Small Business Administration and Florida Economic office are offering short-term loans to businesses. Image from Wikimedia Commons.

In Florida, businesses that have been affected by the oil spill can now qualify for a range of short term loans. The loans are a part of Florida’s emergency relief program. These interest-free loans are offered in conjunction with U.S. federal government installment loan programs intended to help businesses rebound from the oil spill.

Qualifications for the Florida bridge loans

The short term loans available under Florida’s bridge loan system are interest-free. These loans offer up to $25,000 for a one-year time period with no interest. Businesses must have 100 employees or fewer to qualify for these loans. Finally, these loans are available only for businesses that have been open for one year or more before the April 20 oil spill. The business has to prove that it has been “physically or economically damaged by a catastrophe.”

Funding of the Florida short term loans

The Florida bridge loans that have been made available to businesses are a part of a program activated by Governor Charlie Crist. The state of Florida has allocated $5 million for these short term loans. The loan program will be administered through the Governor’s Office of Tourism, Trade and Economic Development. The Florida First Capital Finance Corporation is assisting with the loan administration.

Federal loan options for damaged businesses

The one-year no-interest loans offered in Florida are not the only financial assistance available to businesses hurt by the oil spill. There are 30-year low-interest loans offered through the Small Business Administration. These longer-term loans have about a four percent or so interest rate, and are considered installment loans. The SBA is recommending that business owners take out these low interest loans rather than waiting to settle with insurance or BP. The settlements that BP may eventually make with these entities can be used to repay the SBA loans.

Export cargo isn't just for big businesses (photo: flickr.com)

If you’re a small-business owner and want to start exporting your products, the federal government offers programs to help you expand. Most of these programs can stand alone or work in conjunction with other programs to help increase sales.

SBA and EX-IM

The two main programs available to help small business start exporting are the Small Business Administration and the Export-Import Bank of the United States. A plethora of information on  these two programs is available online, through seminars, and from one-on-one contact.

Utilizing SBA and EX-IM services

To best utilize the services of the SBA and EX-IM, businesses need both solid credit ratings and good business plans. Many colleges work hand-in-hand with the SBA to help develop solid business plans satisfying the SBA’s requirements. A business plan for the EX-IM needs to have the same elements along with a focus on the exporting plans of the company.

SBA

Both start-up businesses and expanding businesses can benefit from services offered by the SBA. These services include helping to find financing for start-up or expansion, qualifying as a minority business, acquisition of minority-based projects, and disaster assistance.

EX-IM

The EX-IM acts as an insurer for the seller on foreign sales. Basically once accepted, the foreign buyer submits the invoice to the EX-IM, along with the necessary information and fees. The EX-IM then runs a credit check on the buyer and determines whether it meets the criteria for financing the goods to be purchased. The EX-IM was established by the government to facilitate exports to foreign countries. Generally it will finance 90 percent of the purchase.

Basics

When working with both the EX-IM and the SBA the seller may then borrow on its SBA revolving credit line to purchase and produce the product it is selling. Once this is shipped, the seller may borrow up 75% of the total sale, if needed prior to payment from the purchaser. At this point the seller’s receipts can also be run through a factoring company.

Example

Here’s an example of how the process works. John Doe has a contract to produce 100,000 boxes of peanuts for export to an approved country. He takes his contract, adds in shipping costs for a final amount, fills in the paperwork, and submits this along with information about the buyer to his contact at the EX-IM. The EX-IM then runs a credit check on the information. If the credit check is approved, and if John Doe is strapped for cash, he takes his paperwork to the SBA where he has an account and borrows enough money to produce and ship the peanuts.

After shipping

Once the product has been shipped, John Doe takes the receipts to either the SBA or a factoring company where he can borrow up to 80 percent of the total amount, after deducting any previously borrowed amounts. He won’t want to borrow more than he needs, as he will have to pay interest on this money when he pays off the loan with the proceeds of the sale. He can then begin the process over again.

Conclusion

This basic overview of the services offered by the SBA and EX-IM provides an idea of some of the export-assistance options available to small businesses. Most major cities in the United States have an SBA office. The offices cover regions and the people who work there will travel throughout the region for appointments.

The EX-IM has contact numbers and seminars offered throughout the country listed on its website. Both agencies are knowledgeable about what small businesses need in order to expand into the export market, and will offer suggestions to better facilitate their services.