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Recovery act lends tools to help small businesses

The Obama administration is determined to employ the American Recovery and Reinvestment Act and the Small Business Administration to make a big dent in the credit crunch facing small businesses.

The goal for SBA is jump-starting job creation, re-starting lending and promoting investment in small businesses.

The Recovery Act provides SBA with $375 million to temporarily eliminate loan fees and raise guarantee limits up to 90 percent on most types of 7(a) loans. It temporarily eliminates 504 loan fees for borrowers and lenders. SBA estimates these provisions will apply to about $8.7 billion in 7(a) loans and $3.6 billion in 504 loans and last through 2009.

To help small businesses compete for construction and service contracts, the act allows SBA to more than double the amount it can offer for SBA-backed surety bonds—from a previous $2 million maximum to $5 million.

An element already in place—SBA’s Microloan program—received more funding for up to $50 million in new loans. This capital is available today for new loans of up to $35,000 and accompanying technical assistance through SBA’s nonprofit, community-based lenders.

In another step, the Treasury Department plan has committed up to $15 billion in TARP funds to help unfreeze small business lending by buying existing and new SBA-backed loans made by banks. This will free up capital for lenders to use for future lending, particularly benefiting small, community and nonbank lenders.

The Recovery Act authorizes the SBA to use its 504 program in various ways: to refinance existing loans for fixed assets in a business expansion project; to use its guarantee authority to establish a secondary market; and to make loans to broker-dealers who buy 504 loans from lenders.

Significant interest has been shown in a new program funded by the act—tentatively called America’s Recovery Capital, or “ARC” Stabilization Loans. Once in place, this temporary program, funded to $255 million, will offer deferred-payment loans 100 percent guaranteed by SBA for up to $35,000 to viable small businesses that need help making up to six months’ worth of payments on existing, qualifying, non-SBA backed loans.

The act also helps to make venture capital available to smaller businesses by raising the money SBA-licensed Small Business Investment Companies can receive if they raise small business investments by 5 percent.

SBA staff is working hard to implement the rest of the Recovery Act’s programs. Although there are many moving parts, SBA’s aim is to implement these programs quickly and effectively for as rapid an affect on small-business credit markets as possible.

Let me emphasize that all of SBA’s existing programs are open for business. We back new loans and provide training, technical and contracting assistance to entrepreneurs every day.

Be assured the SBA is working overtime. We know small businesses have a proven ability to create new jobs and commerce. The next phase of our economic recovery rests in their hands.

Eric Ness is district director of the Wisconsin Small Business Administration. Readers can reach him at (414) 297-1471 or eric.ness@sba.gov.