Confusion & Potential Help/Disaster on Capitol Hill

What a week of information overload! First, President Obama comes out publicly in favor of raising the SBA cap to $5 Million from $2 Million. Remember, the last time President Obama championed small business, he said that TARP would be buying SBA debt and the secondary market would be healed. As of today, I do not believe that ONE loan has been sold on the secondary market with TARP funds. A lot of talk and no follow up. Now, at least 2 Bills are debated, one in the Senate and one in the House. They have some similarities, but are very different. As the "Blogger" here, I would like to enumerate what I believe needs to be done to stimulate SBA Lending. Things that can incent lenders to lend, not watch....

First, a given; Small Business is the engine that will restore the economy because it is where job creation begins. Second, the economy cannot rebound until people are working, and feel good about spending money. We will not get the consumer back until people are not unemployed or underemployed.

1. Increase the limits to $5MM with a guarantee of $4.5 Million for this fiscal year, with a 75% guarantee thereafter.
2. Eliminate borrowers and lenders fees on SBA loans with amortizations under 15 years (these are the loans that actually create jobs, not real estate refinances) or for all loans on business start ups.
3. Restore borrower fees on all loans with amortizations over 15 years and reduce the guarantee back to 75% today on these loans. The SBA is there to provide lending for businesses to stimulate the economy, and to create and maintain jobs. Real Estate loans can be made via the 504 program, or conventionally.
4. Provide a 100% guarantee on loans for business start ups for the first 3 years. Anyone with the guts to start a business in this economy deserves the opportunity to get a loan. With the government printing press going strong printing dollars, let's give some to folks that are entrepreneurial enough to take risk and create jobs.
5. Establish audit standards in concert with SBA lenders so that they have confidence in the guarantee. Eliminate the uncertainty over whether the guarantee will be upheld in the event of a default.
6. Eliminate collateral as a requirement for making SBA loans. The rules from the SBA are such that the guarantee is the collateral. Lenders, because of the lack of faith in the guarantee are requiring collateral to make SBA loans, sometimes wanting them to be FULLY collateralized. That is not the spirit of what the SBA mission is, and should not be a factor. If collateral is available, it should be pledged, but if it is not, the loan should be made if the other underwriting criteria are met.
7. Create incentives for banks to participate in SBA lending. Currently, the cap on SBA loans is about 6% interest. The market for conventional loans is higher. With a guarantee that is in doubt, and an interest rate that is below market, and cumbersome compliance, why should lenders participate? How about some tax credits for SBA lending? Use a carrot instead of a stick, it might actually work!

Now is the time, while we have a clean sheet of paper to make SBA lending the engine that it can be for job creation and real economic stimulus. By the way, all of the above mentioned changes are a drop in the bucket compared to what we are actually spending. All of SBA lending is less that 3% of the stimulus passed earlier this year, yet small business creates 90% of all new jobs. Sounds like a disconnect, doesn't it?

I welcome all comments! Please email me or post.

rfeldman@siegelfg.com