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Senators Propose Immediate Changes at the SBA

Oct 2008

Amid tightened credit by commercial lenders, a recessed economy and rising interest rates, two U.S. Senators are requesting the SBA take immediate steps to help small businesses.

In a recent letter to SBA Acting Administrator Sandy Baruah, Sen. John Kerry, Chairman of the Senate Committee on Small Business and Entrepreneurship, along with Sen. Chuck Schumer, outlined steps the agency should take immediately to help entrepreneurs.

“Experts say it will take months for the rescue package to reach small businesses,” said Kerry. “But small businesses can't wait any longer for a lifeboat to arrive. They need help now and the SBA has that power.”

The key steps the senators are requesting of the SBA include:

• Make bridge loans available through the disaster loan program, as was done following 9-11. This would provide immediate help to small firms because the government would disburse the loans directly and businesses won't need to wait for the rescue package to reach private lenders.
• Change the 504 loan program to allow borrowers to refinance and access some of the equity they've built up in their businesses. This has been done on a case-by-case basis in the past and is necessary now because even good borrowers don't have the funds needed to make it through this recession or expand their business.
• Stabilize the SBA's largest lending program, the 7(a).

“The small business sector in this country is the engine of economic growth, and we need to keep the engine running during this financial crisis. The best way to do that is through expedient, targeted and effective lending through the SBA,” said Sen. Schumer.

Between the two loan programs, 504 loan approvals have fallen off by 17% compared to last year. The program had set records in each of the previous five years. Conversely, approved loans under the 7(a) program declined by 30%.

The 504 program itself remains strong as evidenced by the recent reduction in fees due to its low default rate costs (the on-going borrower fee decreased to zero and the up-front “SBA Guaranty Fee” remains at zero). On the contrary, the comparable 7(a) fee rose to 55 basis points, the statutory maximum.

To help market the programs, the SBA is currently holding meetings across the country to better understand how the agency can work with both lenders and small businesses to help them during these difficult economic times.

Additionally, the SBA is taking steps to encourage the flow of credit to small businesses. Among the key steps taken by the agency are:

• Working to improve the liquidity of SBA loans on the secondary market and exploring strategies to increase access to capital by small businesses.
• Encouraging the SBA's lending partners to use their authority to work with qualified borrowers on a case-by-case basis and defer SBA guaranteed loan payments by up to three months.

Locally, Florida First Capital is working with its 504 lending partners to ensure small business owners continue to have access to affordable financing for the purchase of commercial real estate and long-life machinery and equipment.

According to James, a Florida commercial banker, the 504 program has eased his bank's access to credit.

“Our bank continues to succeed in the market thanks to the availability of funds through the 504 program. While many lending institutions are having difficulty riding out the current credit crisis, we have embraced the 504 program, which allows us to continue to serve our small business community in this time of need.”

Todd Kocourek, president and CEO of Florida First Capital, said the company remains committed to the success of the program, its lending partners and the small business community.

“While we haven't been untouched by the downturn, our lending levels are still strong,” said Todd Kocourek, president and CEO of Florida First Capital. “We are definitely open for business and are reminding our lending partners we have money to lend.”

Under the 504 program, both banks and borrowers alike benefit. The bank provides 50% of the loan and maintains a first lien position. The bank's risk is reduced because the loan is secured by the property being financed and a 100% government backed bond. Florida First capital provides 40% of the loan, which is funded from the sale of long-term bonds, known as debentures, each month. The borrower puts down just 10%, allowing for the retention of much needed working capital in the business.

“The 504 program continues to be a premier economic development tool,” said Kocourek. “And Florida First Capital continues to make every effort to ensure the success of the program. In fact, we are in the process of rolling out sales and service enhancements that will make our organization stronger than ever.”

For more information on FFCFC and its 504 loan program, visit www.ffcfc.com, email us at insider@ffcfc.com or call 888.320.5504.