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Queens, NY June 24, 2009 -
Thank you for having me here today to talk about the SBA provisions in the Recovery Act. You can visit our web site www.gov.sba, Recovery Act, to view the detail information.
The American Recovery and Reinvestment Act is a nationwide effort to create jobs and transform our economy to compete in the 21st century. SBA will play a key role in the recovery. The bill provides funding to the SBA and makes changes to the agency's lending and investment programs.
The Recovery Act is a comprehensive package of tax breaks, financial assistance and market enhancements designed to help foster entrepreneurship and job creation.
The bill provides small businesses with beneficial tax benefits; access to capital; and, specific tools to drive economic recovery. It also offers lenders direct incentives to unlock credit markets and temporarily eliminates loan fees on SBA 7(a) and 504 loans.
Specifically the funding provided to the SBA will be used for the following 10 items:
Each of these program changes is explained in the following sections.
#1 Temporary elimination of Loan Fees
A primary component of the recovery bill - temporarily eliminates SBA loan guarantee fees charged to borrowers and lenders on 7(a) and 504 loan programs.
Fee eliminations are retroactive to February 17th. SBA is currently developing a process for refunding fees paid on loans since that date.
#2 Higher loan guarantees
The new law allows SBA to raise its loan guarantee percentage from the current levels to as much as 90 percent on some 7(a) loans to qualified small businesses. The temporary loan fee elimination and 90 percent guarantee provision will apply to approximately $8.7 billion of 7(a) loans and $3.6 billion of 504 loans. SBA estimates that this will cover lending in both of these programs through calendar year 2009.
By increasing the SBA guarantee percentage, lenders will be exposed to less risk and be encouraged to extend more capital to small businesses.
#3 Secondary Market Liquidity for 7(a) loans
SBA is authorized in the new law to help broker-dealers purchase SBA guaranteed loans from lenders. Brokers will be able to borrow funds from the SBA to buy 7(a) loans from SBA lenders and pool them so they can be sold to investors in the secondary market.
This is a significant change and will improve liquidity in the currently clogged secondary markets for 7(a) loans.
Additional provisions for the Secondary Market
In addition to the Recovery Act, on March 16th, the President announced additional small business provisions, including up to $15 billion from the U.S. Treasury Department to stimulate small business lending and to help unfreeze the secondary market β by purchasing pooled 7(a) loan guarantees and 504 first mortgages.
This effort with the Department of Treasury β in collaboration with the SBA β is designed to unlock the small business loan market by purchasing existing and new loans made by lenders β so additional loans to small firms can be made.
#4 ARC Stabilization loans
A key aspect of the bill creates a new SBA loan program, tentatively called America's Recovery Capital or ARC Stabilization Loans.
Beginning on June 15th, the SBA will start guaranteeing America's Recovery Capital loans. ARC loans are deferred-payment loans of up to $35,000 available to established, viable, for-profit small businesses that need short-term help to make their principal and interest payments on existing qualifying debt. ARC loans are interest-free to the borrower, 100 percent guaranteed by the SBA, and have no SBA fees associated with them. In addition, borrowers will not have to begin repayment on the loans, until 12 months after the loan is fully disbursed.
ARC loans are not designed for start-up businesses. Examples of qualifying loans may include credit card obligations for your business, capital leases, notes payable to vendors/suppliers, 504 first lien loans, other loans to small businesses made without an SBA guaranty, and loans made by or with an SBA guaranty on or after Feb. 17, 2009.
ARC loans are designed to help businesses experiencing immediate financial hardship for reasons such as:
Loss or reduction of customer base; Increase in cost of doing business; Loss or reduction of working capital or short term credit facilities; Inability to restructure existing debts due to credit restrictions; Loss or reduction of employees; major suppliers out of business.
Borrowers whose loans are already severely delinquent or whose past performance or future cash flow indicates that the business is not viable are not good candidates for an ARC loan.
Applying for an ARC Loan
- Does your small business have an established banking relationship?
- Has your small business been in operation for a minimum of two years?
- Do you have financial statements (balance sheet, income statement, and cash flow statement) which demonstrate your business had a positive cash flow in one of the past three years (or as long as your business has been operating, if less than three years)?
- Does your cash flow projection for the next two years indicate sufficient cash flow to meet your current and future loan payments?
- Regarding your debts, is your business no more than 60 days past due on any loan (you can be current on all your debt obligations and still qualify for an ARC Loan)?
- Is your business suffering an immediate financial hardship? For example:
- Declining sales and revenues;
- Difficulty in making loan payments on existing debt;
- Difficulty in paying employees;
- Difficulty in purchasing materials, supplies, or inventory; and/or
- Difficulty in paying rent and/or other operating expenses.
#5 Dealer Floor Plan Pilot program
Beginning July 1, SBA will make guarantees available to support floor plan financing for auto, RV and other dealerships, which will make it easier for these small businesses to borrow against their inventory and increase cash flow at this critical time.
Specifics of the program:
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- Under the Dealer Floor Plan (DFP) pilot program, SBA will provide loan guarantees for lines of credit through its 7(a) program.
- DFP loans will be made through SBA lenders only for inventory that has a title and is registered with a state.
- DFP loans will be available for a minimum of $500,000 up to the $2 million allowable under the 7(a) program.
- With a maximum repayment term of five years, the loans will come with a government guarantee of up to 75 percent.
- DFP loans are available for qualifying businesses in the retail sector, including auto, RV, manufactured housing, boat and trailer dealerships.
- At the completion of this pilot program (Sept. 30, 2010), the SBA will evaluate whether or not to extend the DFP program.
#6 Expanded Micro-loan program
The recovery bill expands SBA's successful micro-loan program. This financing program provides small loans -- up to $35,000 β and provides technical assistance.
The law specifically provides funding to increase loans from SBA to participating micro-lenders by $50 million through September 30th, 2010, and adds $24 million in grants to provide technical assistance to borrowers.
#7 Surety Bond Program expansion
The bill 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.
Increasing surety bond limits will help small businesses compete for federal contracts, especially for the billions of dollars in contracts that are needed to implement the Recovery Act.
#8 SBA will use its guarantee authority and is developing procedures to create a secondary market for first-mortgages associated with 504 loans.
This initiative is designed to provide fresh liquidity for this type of loan instrument.
#9 The bill also gives SBA the power to use the 504 loan program to refinance existing fixed asset loans.
The significant change will help business owners expand their current development projects and create jobs in their communities.
#10 SBIC program Expansion
The bill makes it easier for small businesses to obtain equity capital. It does this by making it easier for SBA-licensed Small Business Investment Companies β SBICs β to leverage more venture capital from the SBA to invest in more small businesses.
The new law also raises from 20 to 25 percent β the dollar investment amounts that SBICs must make in βsmallerβ businesses.
Additional Assistance
SBA offers many resources to entrepreneurs.
- SBA has 68 district offices to help small businesses with financing, technical assistance and government contracting assistance.
- More than 1,000 Small Business Development Centers provide management assistance.
- More than 10,000 SCORE volunteers are available to share their wisdom and lessons learned in business.
- Women's Business Centers assist women in achieving their dreams.
- And finally, SBA's online Small Business Training Network is a virtual campus.
The Recovery Act offers many changes and adjustments to SBA's programs β to help small businesses survive and grow in a slowing economy.
Our free online courses including: Down-Shifting in a slowing economy, How to prepare a loan package, How to prepare a business plan, Business opportunities Consider using these learning tools to expand your knowledge and discover new opportunities.
This briefing has covered a great deal of material. If you have questions about the Recovery Act or how SBA can assist you, contact SBA or one of our resource partners. We will do our best help you.
SBA is working as fast as it can to implement the provisions of the Recovery Act.
The SBA has $730 million in Recovery Act funding. This funding is already in the marketplace and the results are good. At the end of April,
- The average weekly loan volume is up more than 25% compared to before the Recovery Act.
- More lenders are lending in the 7(a) program. In fact, 1,200 lenders have participated so far.
- And in total β about 10,000 Recovery Act loans have been approved with $3.3 billion in credit support to small businesses.
- And we are hearing powerful stories from around the country.
Other presentations to help entrepreneurs, small business and micro-business learn about new, government loan guarantee programs.
- Maureen Babis, Senior Vice President Transaction Services, New York City Economic Development Corporation. Go to Presentation: Capital Access Revolving Loan Guarantee Program; Stimulus Funding for Small Business
- Man-Li K. Lin, Business Development Specialist, United States Small Business Administration. Go to Presentation: SBA Presentation: American Recovery and Reinvestment Act Signed into Law February 17, 2009
- Brian Gurski, Director LaGuardia Community College, Small Business Development Center. Go to Presentation: Succeeding in the Current Economy
- Alexandra Simon, Senior Business Analyst, Business Incentives Unit, New York City Department of Business Services. Go to Presentation: Stimulus Funding for Small Business: Tax Law Changes 2009
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