The National Federation of Independent Businesses recently published its “Small Business Economic Trends” report for January 2011. Since 1986, this survey captures small business owner perspectives on key areas such as earnings, spending, inventory, sales, and credit. This latest report confirms that small business owners continue to be “in a rut” with little change in their perceptions for 2011.
According to the survey, credit conditions for small business owners have rebounded from record lows in 2009, but are still at 20-year lows. Only 29 percent of companies considered to be “regular borrowers” were able to satisfy their needs in December 2010, with an increasing number expecting conditions to worsen.
Enter the Small Business Administration
The Small Business Administration is responding to criticism that it has not been proactive in providing financing support to small businesses. With business lending to small companies still awaiting a rebound, owners have been turning to the SBA for help. Many business owners have expressed concern regarding the bureaucracy and turnaround times required for SBA-supported lending. These complaints have not fallen on deaf ears. The SBA recently announced the launch of two programs that promise to streamline the process for loans approvals.
Small Loan Advantage program
This program offers a streamlined application process for 7(a) loans up to $250,000. The 7(a) loan guarantee program is the most popular SBA program. Participating lenders are provided an 85-percent guarantee on loans up to $150,000 and a 75-percent guarantee on loans greater than $150,000.
Small Loan Advantage will be available through the SBA’s Preferred Lender Program (PLP). The PLP consists of 630 financial institutions across the country. The institutions in this program are given final decision authority over credit decisions.
The program will be launched by March 15th and the word “streamlined” couldn’t be more appropriate. Loan applications submitted electronically will receive a response within a few minutes. Paper applications will receive a response within one day. The application for the borrower is only two pages long. This flexibility is granted in part because only PLPs may participate.
Community Advantage Program
This program expands the reach and availability of 7(a) streamlined loans to what the SBA calls “mission-focused financial institutions,” which include Community Development Financial Institutions, Certified Development Companies, and non-profit microlending intermediaries. These organizations will also provide training and technical assistance in addition to the loan.
The application response time is up to 10 days, but still includes streamlined paperwork with only a two-page application for borrowers.
Community Advantage is only a pilot program beginning by March 15th and continuing for three years.
To further ensure that these SBA programs are being effective, Karen Mills, the SBA’s director, has established a new advisory council for underserved communities that will oversee these programs.
Small Business Lending Fund is underway
As part of the controversial Small Business Jobs Act of 2010, the Treasury Department began the Small Business Lending Fund in conjunction with community banks. The SBLF is a $30 billion fund targeting small businesses. The program is available to community banks that sell equity to the Treasury Department. This grants them access to the $30 billion fund for small business.
The cost of funding to the community bank participants varies based on several factors including the proportion of lending that is dedicated to small businesses. As small business lending increases at a particular institution, the cost of funds is reduced. This provides an incentive to use the capital for small business lending. Many banks, however, are questioning the terms the fund requires in order to participate. They have until March to decide if they want to take part or not. We’ll know at that point which banks are participating and the extent to which small businesses can benefit. Stay tuned.
Mike Periu is the founder of EcoFin Media, LLC which develops financial training, financial education, entrepreneurship training and more to small business owners on television, radio, print and the internet. Over the past ten years he has started three companies and advised over 50 companies on financial strategies including fundraising. Post your questions in the comments of this article.