My latest column at the OPEN Forum looks at President’s Obama’s recent announcement on Monday of the latest small business economic plan. While I think it is positive for some segments of small businesses, overall the main question that comes to mind is: “how relevant is it to what ails small businesses?”
On Monday, March 16, 2009, President Obama announced a new plan to help small businesses. (Announcement here – PDF.)
The plan is mainly centered around easing SBA loans. The plan calls for the government to buy up SBA loan securities to free up the secondary markets so banks can sell their SBA loans; it cuts SBA loan fees; and it increases the Federal guarantee on SBA loans to 90%. It also calls for the 21 largest banks getting Federal funding to report on their volume of small business loans each month. The rest of the announced provisions for the most part were already included in the Stimulus package and not new.
So: thumbs up or thumbs down?
I’d say the plan is mildly positive, but mostly it’s just not relevant to the majority of small businesses. Here’s why:
To the extent small businesses actually want SBA loans, this could help. However, not every small business wants or needs a loan.
To me, the fact that the President took the time to make a small-business-specific announcement and has been more positive in tone of late, will have a bigger symbolic impact than the SBA lending provisions.
Read: Is President Obama’s New Small Business Plan Relevant?
I agree with Scott Shane’s quote in USA Today:
“I don’t see how making banks tell the government how much they’re lending is doing anything but generate more paperwork for the banks,”
I think we should ask the Swedish Chef in the Muppet Show how he feels about serving the new dish called “pānem et circēnsēs” (“bread and circuses”)… Click on “Martin Lindeskog” Says if you want an explanation! 😉
Got tea? I hear that the kettle is boiling…
It helped us out already. Saved us $3,000.00 in fees on the SBA loan we signed yesterday. We move into our new building on Saturday.
Congratulations! What kind of business are you involved in? Where is your new building located? Was it easy to fill out the paperwork for the SBA loan?
Right on Anita. It is simple – for those looking for loans, this is a good step in the right direction. Further, by buying up small business loans that are currently on the balance sheets of the bank, the government will drive activity. However, what about personal guarantees? On the one hand, I agree that you need personal guarantees. However, there are no guarantees for all of the bank and other industry bailouts. But I digress
The issue that will face many business owners is the increase in personal tax rates. Because many businesses are structured as flow-through entities, owners will need to use more precious cash to pay taxes instead of reinvesting that money into their companies. If you are in a state like NY (or worse, in NYC), you are looking at tax rates in excess of 50% with all of the planned increases. This will result in less jobs and less growth from the engine (small businesses) that everyone is turning to to re-ignite the ecnonomy.
It might not help out those who are not looking for loans, but there are many businsses out there who want them and/or need them to keep afloat. Anything that helps them can’t help but be positive. And I believe cutting lender fees and assuring banks that they’ll get there money should help.
Hi Brent, agreed, for those looking for SBA loans this is welcome news. That’s what I wrote in the much longer article at the OPEN Forum.
You see, I was surprised to learn that SBA loans only constituted 4% of all small business loan volume (2006 numbers). That’s part of why I say it’s not relevant to most small businesses. Basically it’s a plan that will impact a percentage of small business loans, and the small percentage of business owners that get them.
But to those for whom an SBA loan is relevant, it’s a welcome move.
I was just checking out the new study from Network Solutions and the University of MD(can be found at http://www.growsmartbusiness.com)which had some interesting findings. Most small businesses definitely self fund. I’m guessing that many of us just don’t want to go that route because we don’t like the thought of owing anybody anything. But maybe there are others that are scared off by the process. If these small steps make it more attractive for some small businessses to go that route, maybe that 4% goes up a bit. But I agree, this move doesn’t impact the vast majority of small businesses out there. Hopefully this is just the first of other moves the administration will be making to help us small folks out.
What do you think Anita should the President do to cater to ALL small businesses?
The President and the Administration should be applauded for recognizing and understanding the need for the loan programs under the SBA (Small Business Administration). However, the real success of all of their programs and proposed changes will be based on the details and so many of those details are still unclear. I will remain hopeful.
Unfortunately there could be a major problem with the $35,000 Business Stabilization Program that was part of the American Recovery act. The wording of the act EXCLUDES any borrower who obtained an SBA 7a loan prior to the signing of that act on 2/17/09, a fact confirmed by the SBA on 3/19/08.
Whether this was an oversight or intentional, this wording leaves out the over 100,000 small businesses that have this type of loan, might currently be struggling and should have been the intended group for this program.
To read more, visit http://www.businessborrowersalliance.org
Business Borrowers Alliance
My husband and I purchased a small business, James Michael Salon & Spa, in Naples, Florida. We have been the new owners for 9 months so we have found there are NO loans out there willing to help us out. The business is debt free but personally we are not, therefore we have had the door closed on us over and over. We have an excellent staff, a great location, outstanding suppliers and an over all good plan for marketing our business to keep us growing. We found we needed help with cash flow and have not compromised paying our staff or suppliers but are at the point where that may start happening. Do you have any suggestions on where to turn with this wonderful new Obama Small Business plan? We live in the land of opportunity, are doing our part to stimulate the economy and employ individuals trying to make a living too. Please help us from becoming the next statistic.