Is Obama is going to send out a Rescue Task force for Small Business?
by: Wade Henderson on Mon, 16 Mar 2009 at: 11:37 PM Go to: Previous Article Next Article
Over the last few years we have all seen our economy fall, no matter which country you live in, no matter what industry you work in, everyone has been affected. Those firms that are still operating have been cutting costs, reducing staff, cutting salaries and setting higher expectations for their employees to produce more with less.
As in the NY Times on March 15, 2009 ''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.'' [http://www.nytimes.com/aponline/2009/03/15/washington/AP-Obama-Small-Businesses.html?hp]
What is this all about? Essentially if you take a look at the existent guarantees issued by the US Government in regards to SBA loans, they have a cap of $20 billion per year. But look a little further and they fall short of this number by over 50%. In 2009 they are expected to fund less than $10 billion. So if they are merely going to adjust the SBA factors, and we have a $10 billion reserve that is not being used, what good is this going to do for us?
The new administration is planning on buying up the slack? By Temporarily eliminating some upfront fees on some of the SBA loans and increasing the guarantee caps to the lenders for these Business Loans. Basically they are looking to off set some of the administrative costs and reduce the risk for the lenders of the SBA loans.
The question now becomes is this enough or just a token to say they are doing something that is left to be seen obviously but lets take a look at this from a business prospective.
Since the majority of this plan is increasing guarantees, is it going to be enough to allow the lenders to reduce their underwriting guidelines to allow more small businesses to access these funds? Lets take a look. We need to make a few broad assumptions here, but lets say that we are currently experiencing a 20% default rate on the SBA Loans being written today. And lets say that the traditional SBA lender will accept a 5% default rate on their Business Loans. Will an increase of 5% toward the defaulted Business Loans have any real impact on the mindset of the risk allowance calculations? Not likely. There are more variables and figures to enter into this calculation, but I am sure you see the point here, it is a start, but it is not enough to motivate SBA Lenders to approve more loans.
There is the bad news, but there is significant good news here too. Now, finally, there is something being done to try to help the small firms, not just the major corporations. We will need more than this to get the economy moving but this is in the right direction.
There are so many alternatives to SBA or bank loans today that are offered by Commercial Finance Brokers as they access to funds for Accounts Receivable Financing, Export Factoring, Purchase Order Finance, Commercial Equipment Loans and Commercial Real Estate Mortgages. Be sure to do you checking around into the various options available to you as there is a loan available for most circumstances if you have the right Finance Broker.
About the Author
Wade Henderson is a recognized Expert in the Business Finance World with over 13 years Experience in the Commercial Lending Field and a strong reputation for getting the deal done. Visit his Business Finance Website to put his experience to work for you.
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