House Panel Says Stimulus Package Benefits Entrepreneurs

The House Small Business Committee is lauding provisions in the just-passed economic stimulus package. Its chairwoman, Rep. Nydia Velazquez (D-N.Y.), called it "a victory for struggling entrepreneurs."

The legislation (part a and part b - both pdfs) would, according to the committee:

* Reduce to zero fees on SBA-backed loans.

* Raise the percentage of a loan that the Small Business Administration may guarantee from 85 percent to 90 percent.

* Establish a new "Small Business Stabilization Financing Program" enabling the SBA to make no-interest loans to firms that are struggling to make payments on existing debt.

* Unfreeze the secondary market by allowing "broker-dealers" of SBA-backed loans to take out additional loans from SBA to purchase additional loans off banks' books. This will provide banks with liquidity and better ability to lend to small businesses.

* Allow SBA to guarantee existing debts in loan pools that are currently unguaranteed.

* Allow small businesses to refinance existing debts under the SBA's 504 program that offers growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings;

* Streamline the Small Business Investment Co. program to provide companies with equity capital to grow and create jobs.

* Require the Government Accountability Office to report to Congress on the implementation of the small business lending provisions in the stimulus.

* Provide $15 million to the SBA's surety bond program, including larger bonding authority, to help small firms obtain construction related projects.

* Provide $30 million for the SBA's microloan program, which provides loans and technical assistance for low income entrepreneurs and laid-off workers who are starting their own business.

The legislation is now being being reviewed by the Senate.

By Sharon McLoone |  February 13, 2009; 3:40 PM ET Regulation Legislation
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This legislation also increases the SBA lending ceiling from $2M to $3M which is great. Unfortunately, all of the legislative benefits are cancelled out by a provision not mentioned in this article. The legislation limits the "good will" (non-hard asset) part of the business value that the SBA will lend on to 50% of the loan amount or $250,000, whichever is greater. As most companies in the Washington metro area are service companies, and not asset-intensive, this provision will effectively deny SBA guarantees to business buyers of businesses costing more than about $500K. A typical small business in this area that sells for $1 or $2M dollars might only have $100K of "hard" assets - vehicles, equipment, computers, etc. The rest of the value of the business is in the cash flow it generates - the "good will". If this provision becomes law, an owner of a $1 or $2M dollar business would only be able to sell to a buyer who had enough of his own assets to use as collateral to qualify for a non-SBA loan. This defeats the a major purpose of the SBA program, which is to enable people to get into business who don't have the collateral to qualify for conventional financing. Things aren't always what they seem and the fine print counts. The good will "cap" needs to be removed from this legislation if the legislation is to have a positive instead of a negative effect on the economy. Don Naideck, Prime Investments, Business Brokers.

Posted by: don25 | February 19, 2009 11:07 AM

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