Tuesday, March 17, 2009

Obama offers aid for small businesses

By Naomi Snyder • THE TENNESSEAN • March 17, 2009 President Barack Obama on Monday unveiled his administration's plan to jump-start small-business lending in the hopes of stemming the nation's mounting job losses. The government will eliminate Small Business Administration loan fees on a temporary basis and buy up to $15 billion in securitized loans from lenders. While the SBA typically guarantees $20 billion in loans annually, new lending this year is on track to fall below $10 billion, according to the Obama administration. Beefing up loan volume for business interests will be a major challenge, though, local SBA lenders said. Basically, the government will buy from banks up to $15 billion in securitized small-business loans nationally — loans that normally are sold to investors. But the number of investors has dried up within the last year amid economic worries. "You deserve a chance. America needs you to have that chance," Obama told small-business owners gathered in the White House East Room. As part of the American Recovery and Reinvestment Act passed by Congress last month, the SBA will spend $750 million to temporarily increase the government backing for SBA loans and temporarily eliminate loan fees on its major lending programs. The fee elimination could save businesses thousands of dollars per loan, depending on the size of each deal, officials said. Also, government backing of SBA loans will go up to 90 percent and new tax breaks will be offered to small businesses. The government typically guaranteed SBA loans to 75 percent or 85 percent in the past. The moves come as loan volumes have shrunk. In the Nashville area, the Small Business Administration backed 70 loans during the six months that ended Jan. 31, compared with 174 during the same period a year earlier, according to the Tennessee SBA district office. The total dollar volume during that time was down 65 percent from $36 million to $12.7 million. Major SBA lenders in Middle Tennessee, including Superior Financial Group, U.S. Bank and Bank of America, all have seen smaller loan volumes. Bank of America went from providing 33 SBA loans in the state during that six-month period last year to none this year. Demand may be slight A company spokeswoman said the bank was committed to small-business lending and made $4.8 billion in new loans to nearly 250,000 small businesses nationwide last year, but she declined to provide figures for Tennessee. Not all small-business loans go through the SBA. But SBA lending is designed to help small businesses that have trouble getting conventional bank loans. The Obama administration may have a tough time persuading some business owners to expand and take on more debt amid a recession. Clint Gwin, the president of nonprofit small-business lender Southeast Community Capital in Nashville, said he knows of some borrowers who are trying to reduce their debt, not increase it, to deal with tough economic times. In addition, lenders are less willing to lend to borrowers who have deteriorating financial statements, he said. Another part of the American Recovery Act provides SBA funding for "business stabilization" loans of up to $35,000 to small businesses to help them get through the recession. These loans require no payments for 12 months. That loan program, however, hasn't gotten started yet. Some lenders are hopeful that the latest federal plans will jump-start small-business activity. "If government can come in and take the place where buyers have left the market temporarily, it should increase the availability of loans,'' Gwin said. "It will help." Clint Smith, the director of the SBA district office in Tennessee, said the administration's plan gives lenders an incentive to make more loans by reducing risk and offering a ready buyer for the loans — namely, the government. That frees up capital for the banks to lend more, he added.

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