Donna Hartley, sole proprietor of Harley International, found Grant Financial Network on the Internet. In return for $2,500, she was promised detailed information on grants and assistance in securing them. Instead of a check, they requested a bank draft, the most difficult kind of payment to dispute, but Hartley is an honest and therefore a trusting person. When she didn’t hear from them and finally called to get her money back, they offered to turn her company into a 501c (3) charitable organization for an additional $6,500. The Better Business Bureau of Las Vegas, where Grant Financial Network was located, rates Grant Financial Network as unsatisfactory. The bureau processed 26 complaints about the company in the last 12 months. Hartley has also lodged a complaint, but she doesn’t expect to see her money anytime soon. (Taken from CNN.Money.com, January 29, 2009, contributed by Kathleen Regan O’Connor).
What help, in fact, does the Federal government offer small business owners? In particular, what will the Recovery Act provide?
The American Recovery and Reinvestment bill provides $730 million to the Small Business Administration (SBA) to help American small businesses. This is mainly in the form of loans and loan guarantees to make up for and to ease the current credit crunch in private lending. Before we go into the details on loans and credit, what about grants? What about free money that doesn’t need to be repaid? This is what I found in the FAQ (Frequently Asked Questions) section of the SBA Web site (http://www.sba.gov/) :
The U.S. Small Business Administration does not offer grants to start or expand small businesses, although it does offer a wide variety of loan programs. While SBA does offer some grant programs, these are generally designed to expand and enhance organizations that provide small business management, technical, or financial assistance (such as the SBIR/STTR (Small Business Innovation Research/Small Business Technology Transfer) grant programs). These grants generally support non-profit organizations, intermediary lending institutions, and state and local governments. For more information, visit the SBA Grants section.
What Does the Recovery Act Do to Help Small Businesses?
The American Recovery and Reinvestment bill takes a comprehensive approach and attacks several problems facing small businesses at once by reducing fees, guaranteeing a greater share of certain loans, expanding capacity in the Microloan program, providing new stabilizing loans to help small businesses survive during economic hardship, as well as new mechanisms to help unfreeze the secondary markets for SBA-backed loans.
The bill provides $730 million to the SBA. Among the highlights are:
90 Percent Guarantee
The bill allows SBA to raise its loan guarantee from the current levels to as much as 90 percent for some loans. At present, SBA can guarantee loans up to 85 percent on loans up to $150,000, and up to 75 percent on loans greater than $150,000. The 50 percent guarantee on SBA Express loans remains unchanged. Increasing the SBA guarantee percentage encourages lenders to extend more capital to small businesses by increasing the share covered by an SBA guarantee. Temporary fee reductions or eliminations on SBA loans are intended to provide relief to small business owners with SBA loans. $375 million has been allotted for these purposes.
Business Stabilization Loans
The bill provides $225 million to create a new SBA loan program to provide deferred-payment loans of up to $35,000 to viable small businesses that need the money to make payments on an existing, qualifying loan for up to six months. These loans will be 100 percent guaranteed by SBA. Repayment would not have to begin until 12 months after the loan is fully disbursed. These loans will help ensure that small businesses have time to refocus their business plans in order to succeed in the long run.
Microloans
The bill provides $30 million to expand SBA’s Microloan program, which provides small loans (up to $35,000) paired with technical assistance to start-up, newly established or growing small businesses. The bill provides funding to increase loans from SBA to participating microlenders by $50 million through September 30, 2010, and adds $24 million in grants to provide technical assistance to borrowers. Historically, these loans reach low-income individuals, women and minorities in both rural and urban areas. The loans are funneled through non-profit community organizations that vet the applicants and make the loans.
Refinancing
The bill also gives SBA the power to use the 504 Certified Development Company program to refinance existing loans for fixed assets, providing fresh support for small business expansion. This change will help business owners expand their current development projects and create jobs in their communities.
Secondary Market Expansion
The bill authorizes SBA to establish a secondary market for pools of “first lien” loans under the 504 program. These “first lien” loans from commercial lenders currently have no SBA guarantee. The bill authorizes SBA to deploy federal guarantees for pools of these first lien loans, so that they can be sold to investors in a secondary market. Providing liquidity for these first mortgages will help encourage lenders to continue participating in SBA’s 504 loan program, which provides a key source of capital for community development and other projects.
The bill also empowers SBA to set up a Secondary Market Lending Authority that would make direct loans to broker-dealers that participate in the secondary market for SBA-guaranteed 7(a) loans. These broker-dealers would use the funds to purchase SBA-backed loans from commercial lenders, assemble them into pools and sell them to investors in the secondary loan market. This program may help address some of the issues facing the secondary market for SBA loans and may ultimately help SBA lenders make new loans to borrowers.
Investment Program
The bill helps SBA-licensed Small Business Investment Companies (SBICs) and families of SBIC funds better leverage the capital they use to invest in small businesses. The bill sets maximum levels of funding the agency can provide to these companies at up to three times the private capital raised by those companies, or $150 million, whichever is less. It also raises the percentage any one SBIC can invest in a single small business to 10 percent of total capital, and raises from 20 percent to 25 percent the percentage of any licensee’s dollar investments that must be made in “smaller” businesses.
Surety Bonds
The bill provides $15 million to guarantee surety bonds and also raises the maximum contract amount that can be covered by an SBA guaranteed surety bond from $2 million to $5 million, and, under certain circumstances, for contracts amounting to $10 million, and provides additional funds to cover the costs of expanding this program. Small businesses need surety bonds in order to bid on and obtain many federal and other contracts. SBA guarantees surety bonds to small businesses that private surety companies would not otherwise be able to extend.
The information on the funds allocated to the SBA by the Recovery Act was taken from www.sba.gov/news
Release Number 09-10, February 18, 2009
Contact: Mike Stamler (202-205-0919)
Photos courtesy of Svadilfari and ladybugbkt
Thank you so much for posting this. I am researching this topic for business planning and this is very helpful and informative.
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