When the $787 billion stimulus bill passed in February, hopes were high that it would, among other things, provide a boost for small businesses hard hit by the credit crunch.
Since then, the Obama administration and Small Business Administration officials say small business lending has risen 70 percent. That’s still short of pre-recession levels “but we’re on the way to getting there,” says David Hall, an SBA spokesman. Small businesses that have successfully navigated the maze of paperwork involved in getting credit backed by SBA loan guarantees have used the funds to create jobs, make capital improvements – and even start companies.
But taking advantage of stimulus incentives is proving challenging, to say the least. If they’re not familiar with them, policies and procedures small businesses must to adhere to when performing work on stimulus-related state or federal contracts is daunting, according to small business advisors and government contracting experts. In addition, credit remains tough to come by as many bankers continue to use old criteria for making small business loans despite government-backed incentives, business owners and advisors maintain.
To ease the situation, the Obama Adminstration this week announced plans to sweetened guarantees for banks that make SBA loans and open up stimulus funds to community banks that make loans to businesses operating in economically disadvantaged areas.
Under the new plans, certain SBA loans will top out at $5 million, up from $2 million. Local banks with less than $1 billion in assets that submit plans showing how they’ll use TARP funds for small businesses could get capital at thee percent interest, instead of the five percent larger institutions pay. Administration officials said they’ll seek comments on the new proposals for several weeks before finalizing the details.
Overall, the American Recovery and Reinvestment Act includes a number of programs that canpotentially benefit small businesses, and it’s not too late to advantage of any of them. They include:
Government contracts - Small businesses can work on wide range of federal, state or local projects funded by stimulus money, though they must adhere to stringent guidelines that apply to all government contractors.
Tax credits – The stimulus bill includes a number of tax breaks for companies of all sizes, including reduced estimated tax payment requirements; credits for hiring veterans and “disconnected youth”; expanded COBRA credits, and energy-related breaks. In addition, businesses with revenue of $15 million or less operating at a loss can get refunds on five years worth of back taxes, up from two.
Loan programs – In addition to increasing loan guarantees and adding community banks and credit unions to the list of institutions eligible for stimulus funds, the stimulus bill created the America's Capital Loan Program. The ARC program lets qualified small businesses get interest-free emergency loans of up to $35,000 to pay off other debts and defer payments for up to 12 months. Through mid-October, approximately $102 million in ARC loan funds had been approved, according to the SBA. The agency also increased the amount of funds available in its microloan program to $50,000 from $35,000.
Of all the stimulus package’s components, it’s the SBA loans that have received the most attention, and complaints.
Small business consultant Joe Abraham says regional bankers still fear potential fallout from bad loans. As a result, they haven’t rolled lines of credit back to pre-recession levels and continue to use old lending requirements as criteria for making new ones, including checking potential borrowers’ FICO scores and using their homes as collateral.
With real estate prices are still depressed throughout most of the country, that means his small business clients are still locked out of credit, says Abraham, managing director at En Corpus Group in Hoffman Estates, Illinois, outside of Chicago. “Even though there may be money to lend, at the end of the day the banker who’s making the decisions is petrified,” Abraham says.
Incentives are working for some. President Obama’s Oct. 20 press conference kicking off the additional SBA loan offerings was held inside a warehouse owned by Metropolitan Archives, a Landover, Maryland, company that stores paper files for law firms. Co-owners Joseph A. Incarnato and Doug Peters used an SBA loan to buy the building and received energy tax credits for replacing the lighting and AC, said SBA Administrator Karen Mills in a call with reporters following the press conference. “It’s this kind of business that’s growing and adding people that’s going to bring us out of recession and into recovery,” Mills said.
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