SBA Reconsiders 'Goodwill' Loan Provision

The Small Business Administration is holding off on implementing tighter bank lending restrictions until it can more effectively study the matter after receiving a rash of complaints about its plan from the financial and small business communities.

The agency this month notified banks offering its most popular loan program that effective March 1, the SBA would limit "goodwill" financing to 50 percent of the loan amount or a maximum of $250,000. The agency does not make loans itself but works with partner banks to offer a variety of loan programs. The agency defines the goodwill value of a company as the part of the company that can't be accounted for through physical things like assets in a warehouse.

Business brokers and lenders pilloried the SBA's initial proposal, saying the $250,000 cap was too low, not well thought-out and could prevent laid-off workers from being able to finance the purchase of a small business as a way to gain new employment.

In a memo to SBA employees Friday evening signed by Grady Hedgespeth, SBA's director in its Office of Financial Assistance, the agency said it reconsidered its decision because its data on these types of "goodwill" loans was inadequate. The SBA plans to provide further guidance on Aug. 31 after having six months to collect more complete data.

Hedgespeth said the agency began collecting data on business acquisitions about four years ago, but its data does not include how much of the acquisition was goodwill or whether the goodwill portion was financed by the seller, buyer or with non-SBA guaranteed funds. The agency does not make loans itself but works with partner banks to offer a variety of loan programs.

House Small Business Committee leaders had sent a letter to SBA Acting Administrator Darryl Hairston on Friday calling for the agency to rescind the new policy or delay its implementation until further review.

"Credit markets are tight enough as it is and this proposed policy would only make things worse," Rep. Nydia Velázquez (D-N.Y.), chairwoman of the committee, told "The ultimate impact of this rule change would be to make it harder for small businesses to access capital."

By Sharon McLoone |  February 28, 2009; 7:15 AM ET Policymakers , Regulation Legislation
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Please email us to report offensive comments.

traditionally SBA financing has been restricted to hard
capital and as a result SBA loan losses have been small.
Financing Goodwill is little better then financing Air.

Goodwill purchases if allowed should be restricted to
some very small percentage of the hard assets and to
some small percentage of the annual revenue.

Goodwill is a "intangible" asset of any firm, but, that does
not make it a good subject for the SBA guarantee process.

Posted by: patb | February 28, 2009 1:53 PM

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