subject: Government Small Business Loan Program, Part 2. Is Money Coming Our Way? [print this page] In the last article on this subject, your hopes may have been elevated as a small business owner in learning about the new State Small Business Credit Initiative Act of 2010 (HR 5302). It would be dispersing Federal monies to states who would then make loans for working capital needs. Now there is a novel idea: putting money into the hands of hardworking business owners instead of squandering it on big banks. Let me explain some of the details of the program and how it may help a small business owner.
This bill was set before Congress on May 19 through general Counsel Gene Sperling of the Treasury Department when he spoke to the House Full Committee on Financial Services. Its economic trajectory was simple: appropriate a fresh $30 billion from the Treasury to be distributed to the various states. The states, through their redevelopment agencies, would collect and disperse the monies to willing community banks. Many of our states (at this point 34 of them) already do so under existing programs.
Only banks with assets less than 1 billion can be involved, ruling out the megabanks that have taken advantage of TARP. A bank with assets less than 1 billion can receive Federal money equal to 5% of their assets and banks worth up to 10 billion would receive up to 3% of their assets. After all, there are approximately 8,000 banks who might be eligible.
The Federal money would be super cheap. Basically, the banks would repay the government starting at only 5%. That rate could be reduced as low as 1% for every 2.5% increase in small business lending as compared to a 2009 fiscal baseline. And even better, a bank would only pay 1% if it increased its small business loaning by 10%. Now that's a deal. And if a bank decided to keep the money and run, it would then be charged an interest rate as high as 7%. This proposal is similar to the one generated about seven months ago, except it does not use TARP money.
This has come not a moment too soon. On Thursday, the Congressional Oversight Panel, which is the oversight agency for TARP, stated that "Small business credit remains severely constructed. Unable to find credit, many small businesses have had had to shut their doors, and some of the survivors are still struggling to find adequate financing." No kidding. It looks like someone finally cleaned their glasses and looked out the window on Main Street.
So now we have a good start and can hope for the best in the enactment of this legislation. In the meantime, is anyone actually lending out there? Some actually are. It is the SBA Community Express Loan Program. These are unsecured small business loans in the neighborhood of $5,000 and $25,000, answers typically in two days, interest rates presently at 7.75%, funding in 14 days, and monies wired directly to your business account. There are still lenders active in this program. So the meantime, at least we have a source of ready cash flow. We may make it after all.
