Oversight

How will the stimulus help small businesses?

February 23rd, 2009

Stimulus packages are just a waste of taxpayer money because all it is is a short term recovery plan. Once the money is used up and the work has been completed, it’s as if there was no boost at all.

However, the Obama plan has some benefits for small businesses that could stoke our nation’s economic fires. Small business accounts for much of the economic growth in our country, and the stimulus package will give additional funding to the Small Business Administration (SBA) for loan guarantees, microloans, bridge loans and more.

FEES

$375 million to temporarily waive or reduce fees in the 7(a) and 504 loan programs. Small-business borrowers have priority, followed by lenders with less than $1 billion in assets, then by large lenders. This should lower loan costs for borrowers and lenders.

LOAN GUARANTEES

$255 million to allow the SBA to temporarily raise its guarantee to as much as 90% for 7(a) loans, excluding SBA Express loans. Maximum guarantees are now 75% for loans of more than $150,000; 85% for loans of $150,000 or less.

MICROLOANS

$30 million for third parties in the microloan program: $24 million to pay for the business consulting they provide; $6 million for the cost of direct loans they make. This program, which focuses on businesses with fewer than 10 employees and loans of less than $35,000, has seen demand increase during the recession.

BRIDGE LOANS

Allows banks to make 100% SBA-guaranteed, small, short-term loans to existing SBA borrowers in immediate financial hardship. Borrowers have 12 months to begin repaying the bridge loan and five years to complete repayment. Applies to loans guarantees of $35,000 or less made after the bill is signed.

SECONDARY MARKET

To help unfreeze the secondary market in which third-party investors buy SBA loans that banks have sold to brokers-dealers, the bill allows the SBA to make loans to broker-dealers and guarantee as much as $3 billion of existing debts in loan pools that are currently not guaranteed. The secondary market has been moribund since the subprime mortgage meltdown.

SURETY BONDS

$15 million for the SBA’s surety bond revolving fund and a temporary increase in the SBA guarantee limit on surety bonds to a maximum of $5 million from $2 million. Construction companies have had a hard time getting these bonds they need for contracts.

Provides money for the SBA’s Inspector General Office to oversee bill programs. Requires regular reports from the SBA on progress made. Has ambitious deadlines for the agency to create and issue regulations that will govern the new programs.

Information obtained from clarkhoward.com

Kevin Colby: News, culture, political blog