Recently, the Obama administration announced several steps by the Small Business Administration and the U.S. Department of Treasury to address the economic challenges facing small businesses and entrepreneurs across the country.
Small businesses in the U.S. employ about half of the nation’s workers and over the last decade have created about 70 percent of all new jobs. But their access to credit and lending markets has dried up, making it harder every day to keep their doors open and their employees working.
American small businesses are one of the strongest engines for economic prosperity in the world and will be the catalyst for much of the economic recovery. The Small Business Recovery Act takes a comprehensive approach to several problems facing small business today. The act:
? Provides entrepreneurs and lenders financial relief from the current economic crisis that will help encourage borrowing and lending to all small businesses, including start-ups.
? Offers business access to the capital and the tools they need to drive economic recovery and to create and retain jobs.
? Helps unlock credit markets for small business.
Smart Business spoke to Darlene Nowak-Baker, executive vice president, commercial lending, First Place Bank, about what the SBA Recovery Act means to the health of small businesses and how companies can reap the benefits.
What do businesses need to know about the SBA Recovery Act?
The two key provisions of the SBA Recovery Act will, one, temporarily eliminate certain loan fees and, two, raise guarantees on some 7(a) loans up to 90 percent. The elimination of the fees for borrowers on SBA 7(a) loans and for both borrowers and lenders on 504 Certified Development Company loans through calendar 2009 will make more capital available to small businesses at a lower cost.
In addition, the increase in guarantee levels to 90 percent will provide banks with the greater confidence they need to extend credit during the current recession.
When do the two key provisions go into effect?
These provisions are retroactive back to Feb. 17, 2009. For eligible loans approved between Feb. 17, 2009, and now, the agency will make funds available to refund payments for these fees.
How long will the SBA Recovery Act be in effect?
The program level has been set at approximately $8.7 billion and, depending on the loan volumes in the 7(a) program, the SBA estimates that it will be able to eliminate the upfront guarantee fees on loans approved through Dec. 31, 2009.
What types of businesses can benefit from the SBA Recovery Act?
Depending on the industry classification of the company, almost any owner-occupied business with revenue less than $6.5 million or fewer than 500 employees will qualify. There are exceptions to these limits, but this covers the majority of the industry types.
Types of businesses that do not qualify are nonprofit organizations and real estate investment properties that collect rent from a nonrelated entity. In addition, state or local governments, casinos or gambling establishments, aquariums, zoos, golf courses and swimming pools do not qualify.
How much money can a company borrow under this program, and what can the funds be used for?
Under the SBA 7(a) program, a company can borrow up to $2 million for purposes such as purchasing new equipment and/or inventory, purchasing an owner-occupied building, acquiring an existing business, refinancing existing debt, a construction project or leasehold improvements, just to name a few.
The SBA 7(a) loans are term loans with amortization up to 25 years — amortization length is determined by the use of the proceeds. In addition, the SBA express program has a maximum amount of $350,000 to cover working capital needs a company may have.
What type of information should an interested small business put together to begin the process?
A business’s application checklist should include:
? SBA loan request form
? Management resume (must be completed for each partner holding 20 percent or more ownership and all key management)
? Statement of Personal History (SBA Form 912) must be completed for each partner holding 20 percent or more ownership
? Business federal tax returns for three prior fiscal years
? Interim business financial statements (year-to-date)
? Business plan
? Month-to-month projections for the current year and the following two fiscal years
? Business debt schedule
? Personal Financial Statement (SBA Form 413)
? Personal federal tax returns for three years prior
Darlene Nowak-baker is an executive vice president, commercial lending at First Place Bank. Reach her at DNowak-Baker@fpfc.net or