WASHINGTON
- The American Recovery and Reinvestment Act contains a package of loan fee reductions,
higher guarantees, new SBA programs, secondary market incentives, and enhancements
to current SBA programs that will help unlock credit markets and begin economic
recovery for the nation’s small business sector.
“The
tax incentives and credit stimulus elements of the Recovery Act will truly help
small business owners affected by the credit crunch, and will provide financing
opportunities to help them create new jobs in their communities,” said Acting
SBA Administrator Darryl K. Hairston.
“There’s
a lot to digest in the legislation, and SBA has established teams to tackle a
wide variety of policy decisions, system modifications, regulatory changes, legal
requirements, and new program launches authorized by the President and Congress,”
said Hairston.
The bill provides $730 million to SBA and
makes changes to the agency’s lending and investment programs so that they
can reach more small businesses that need help. The funding includes:
- $375
million for temporary fee reductions or eliminations on SBA loans and increased
SBA guaranteed shares, up to 90 percent for certain loans
- $255 million
for a new loan program to help small businesses meet existing debt payments
- $30
million for expanding SBA’s Microloan program, enough to finance up to $50
million in new lending and $24 million in technical assistance grants to microlenders
- $20 million for technology systems to streamline SBA’s lending
and oversight processes
- $15 million for expanding SBA’s Surety
Bond Guarantee program
- $25 million for staffing up to meet demands
for new programs
- $10 million for the Office of Inspector General
The bill also authorizes refinancing for certain
SBA loans so borrowers can expand their businesses on favorable terms, and expands
leverage capability for Small Business Investment Companies.
“We
are going to be part of the solution, and this bill gives us specific tools to
make it easier and less expensive for small businesses to get loans, give lenders
new incentives to make more loans, and help restore healthy SBA secondary markets
to boost liquidity,” Hairston said, noting also that more details on implementation
will be coming over the next few weeks.
The stimulus bill
takes a comprehensive approach and attacks several problems facing small businesses
at once by reducing fees, guaranteeing a greater share of certain loans, expanding
capacity in the Microloan program, providing new loans to help small businesses
keep their doors open through economic hardship, as well as new mechanisms to
help unfreeze the secondary markets for SBA-backed loans.
Declines
in SBA lending volume last year, which are continuing in FY 2009, reflect problems
in the broader credit markets, and present hurdles to small businesses that are
seeking credit in the current economy. The financial crisis has created a variety
of conditions that impact small businesses, including a lack of liquidity in the
banking system, a reluctance of many lenders to extend new loans, tightened credit
standards, weaker finances at small businesses, and uncertainty about taking on
new debt on the part of many entrepreneurs.
The Recovery
Act addresses small businesses’ lending problems, and addresses key investment
and contracting issues. The bill helps Small Business Investment Companies better
leverage investment capital to reach more small companies. The bill also increases
the current contract limit for SBA’s Surety Bond Guarantee program, which
will help small businesses compete for contracts.
90 Percent
Guarantee
The bill allows SBA to raise its loan guarantee
from the current levels to as much as 90 percent for some loans. At present, SBA
can guarantee loans up to 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 will encourage
lenders to extend more capital to small businesses by increasing the share covered
by an SBA guarantee.
Business Stabilization Loans
The
bill creates a new SBA loan program to provide deferred-payment loans of up to
$35,000 to viable small businesses that need the money to make payments on an
existing, qualifying loan for up to six months. These loans will be 100 percent
guaranteed by SBA. Repayment would not have to begin until 12 months after the
loan is fully disbursed. The bill provides $255 million for this new program.
These loans will help ensure that small businesses have time to re-focus their
business plans in order to succeed in the long run.
Microloans
The
bill expands SBA’s Microloan program, which provides small loans (up to $35,000)
paired with technical assistance to start-up, newly established or growing small
businesses. The bill provides funding to increase loans from SBA to participating
Microlenders by $50 million through September 30, 2010, and adds $24 million in
grants to provide technical assistance to borrowers. Historically, these loans
reach low-income individuals, women and minorities in both rural and urban areas.
Expanding this program through the stimulus bill will help ensure these entrepreneurs
are not left behind in the credit crunch.
Refinancing
The
bill also gives SBA the power to use the 504 Certified Development Company program
to refinance existing loans for fixed assets, providing fresh support for small
business expansion. This change will help business owners expand their current
development projects and create jobs in their communities.
Secondary
Market Expansion
The bill authorizes SBA to establish
a secondary market for pools of “first lien” loans under the 504 program.
These “first lien” loans from commercial lenders currently have no SBA
guarantee. The bill authorizes SBA to deploy federal guarantees for pools of these
first lien loans, so that they can be sold to investors in a secondary market.
Providing liquidity for these first mortgages will help encourage lenders to continue
participating in SBA’s 504 loan program, which provides a key source of capital
for community development and other projects.
The bill
also empowers SBA to set up a Secondary Market Lending Authority that would make
direct loans to broker-dealers that participate in the secondary market for SBA-guaranteed
7(a) loans. These broker-dealers would use the funds to purchase SBA-backed loans
from commercial lenders, assemble them into pools and sell them to investors in
the secondary loan market. This program may help address some of the issues facing
the secondary market for SBA loans and may ultimately help SBA lenders make new
loans to borrowers.
Investment Program
The
bill helps SBA-licensed Small Business Investment Companies (SBICs) and families
of SBIC funds better leverage the capital they use to invest in small businesses.
The bill sets maximum levels of funding the agency can provide to these companies
at up to three times the private capital raised by those companies, or $150 million,
whichever is less. It also raises the percentage any one SBIC can invest in a
single small business to 10 percent of total capital, and raises from 20 percent
to 25 percent the percentage of any licensee’s dollar investments that must
be made in “smaller” businesses.
Surety Bonds
The
bill also raises the maximum contract amount that can be covered by an SBA guaranteed
surety bond from $2 million to $5 million, and, under certain circumstances, for
contracts amounting to $10 million, and provides additional funds to cover the
costs of expanding this program. Small businesses need surety bonds in order to
bid on and obtain many federal and other contracts. SBA guarantees surety bonds
to small businesses that private surety companies would not otherwise be able
to extend.
