There has been a lot of excitation in the wake of President Obama taking office, including the very first major enactment of his career, particularly the American Recovery and Reinvestment Act of 2009. Before it was put into law, for good reason, there was much discussion of the dire need to help our small businesses that, under any economist's objective point of view, needed help in this troubled economy. And because it addressed small businesses, there was talk that it had created a new Stimulus Loan Program so small businesses could receive needed capital. But before we get too excited, let's examine if there really is such a new creature under the Act.
I have good news and bad news. The bad news is the Act does not create a new Stimulus Loan program. The good news, as I will discuss in a moment, is that there are SBA loan programs that fit the same bill. An examination of all 1,200 pages of the Act demonstrates that not a single dime is allocated directly to small businesses, or for loans / lines of credit. Quite frankly, except for disaster relief (SBA's FEMA loan program), the Federal government has never been in the business of giving away or loaning monies directly to businesses. Instead, the Act took the existing SBA loan programs and simply made them "new and improved". In previous articles, I described how section 501 eliminated the SBA guarantee fee which was collected from the borrower on closing and sent to Washington to help defray bank losses if there was a default. And, section 502 increased the guaranteed percentage for such losses up to 90% on all SBA loan products except SBA Express (which candidly is not being used very often nowdays). So it is more like "Same programs, better terms".
So what does that mean to small businesses? As a bottom line, does the Act help us in any way? If you're looking at some new drastically different loan program that will save the day, you will be disappointed. But if you're looking at improved programs which hopefully give more incentivies to banks making loans, you're more in luck. For example, the popular SBA Community Express Loan Program is now stronger than ever with gives you more than a chance to receive one of the loans. Here are some of the beneficial terms:
o Loans from 5K to 50K.
o Unsecured. There are no liens on your property or residence.
o Simple paperwork without any tax returns, business plans, or financials.
o Because of simplified procedures, you can usually receive an answer in 48 HRS and funding within two weeks.
o Start-ups are OK, although they usually receive smaller loans.
o The interest rate is at a seven year low, which combined with regulation by the SBA, is at 7.75%, or a principal and interest payment of $ 60 per month for every $ 5,000 borrowed.
Sound too good to be true? Well pinch yourself again because they are happening day in and day out. It is part of a pilot program which began in 1995 which was meant to be simple for small businesses to apply for and receive such loans. And the good news is that banks are actually making them. Although they may not technically be called Stimulus Loans, in practical effect they are synonymous. After all, who cares what we call them as long as they can deliver needed capital to our small businesses?