Worse yet are the numerous stories of banks coming back around to their small business customers to ‘reevaluate or review’ a loan package or line of credit. The banks have been doing this with regularity over the past year and a half primarily because they have economic jitters (and regulators breathing down their necks) and, the unconditional right to do so. Often times, this activity requires extraordinary amounts of work on the part of the business owners (a major distraction) in order to provide the bank with an updated inventory count or some other form of business valuation, to appease them enough to move their company off the hot seat.

Speaking as a small business owner, it’s especially frustrating to see all of this going on, knowing full well the significant contributions that small businesses make to the US Economy in the two leading areas that determine the health of the economy at large; real GDP (gross domestic product) and net new jobs created. According to the SBA, “small businesses create most of the nation’s new jobs, employ about half of the nation’s private sector workforce, and provide half of the nation’s nonfarm, real gross domestic product…”

So here’s the good news, sort of: HR 5297 – Small Business Jobs and Credit Act of 2010. This SBA bill, sponsored by Rep. Barney Frank of Massachusetts, is big news for small businesses. It passed the House but… we’ll get to that it just a moment.

HR 5297 stands to benefit small business in some big ways. First, it provides a 90% loan guarantee via the SBA, giving the banks the security that they need to make a loan. Compared to the normal 75% guarantee, it can mean the difference between getting the loan or not. Second, there are no fees associated with this loan package. This alone can save a small business tens of thousands of dollars! Third, the loan limit has been increase to $5 Million. The bill also allows businesses with up to $15 Million in net worth to qualify. The previous limit was $8.5 Million. In addition, small businesses with existing SBA loans that have balloon payments coming due can refinance their commercial loans through this program.

Now for the bad news: Politics…need I say more? HR 5297 passed the House of Representatives on June 17^th with 241 in favor, 182 opposed and 9 abstaining. A small margin for sure but, it passed. It has since stalled in the Senate due primarily to a Republican filibuster.

This post is not intended to be a political commentary. It’s my hope that our representatives in the Federal Government will have the good sense and the higher calling to put aside their differences and truly act in the best interest of the people by passing this bill.

Monday, September 13^th is the day Senators head back to Washington after their summer recess. Waiting for them, front and center, will be HR 5297. As you can imagine, there is a lot of energy and anticipation surrounding this particular bill. With all of its attributes and the fact that it could be very profitable for the banks, it stands to be a win-win-win. Small businesses win, they get funded. Banks win, they make profitable loans. Government wins, they serve their constituency, create real GDP and jobs.

The SBA lending community (approved banks) has started to come alive recently and, according to several business owners that I have talked to across the country, banks are now reaching out to their small business customers in order to reopen funding discussions. Presumably, this is in anticipation of the passage of HR 5297.

If you have not heard from your banker recently and you are interested in seeking funding through the SBA, you owe it to yourself to put a call in to him or her and find out what they are doing to prepare for the potential passage of HR 5297. More importantly, you should find out what they can do for your small business specifically.

The entire 122 pages of  HR 5297 is available here.. <Link> 

The plan, which is being referred to as the Public-Private Investment Program, is based on an initial investment of $100 Billion from the treasury, in addition to guarantees by the FDIC, to buy distressed mortgage securities currently on the banks balance sheets.

The impetus of the plan is to get private investors, speculators really, to buy the securities and support them in doing so in an effort to narrow the gap between what banks are willing to sell them at and what the market will bear.

What’s curious about this plan is the apparent role reversal on the part of the banks in this particular case. Everybody knows that you buy low and sell high, especially bankers? These banks are being encouraged (forced…) to clear this debt from their balance sheet.  All of the major banks have received 10’s of Billi0ns of dollars as part of the bail-out. If you read Geithner’s tea leaves it’s clear that what is now required of them is to liquidate these “assets” for a onetime loss and to take the write down!

Ouch! Those just aren’t words that any banker likes to hear much less as it relates to their own assets. The banks’ hoped, apparently, to get the bail-out money (they got it) and then hold onto the depressed assets until the market returned, dump the assets and profit handsomely. Well, it doesn’t look like that’s the way this is going to go.

It will be interesting to see how much arm twisting will need to take place to get the banks to burn this crop in the field order to fertilize it for next season, so-to-speak.

(Excerpts taken from the Wall Street Journal 3/24)

Unfortunately, small businesses have never recieved the type of support that they are due given the percentage of the economy that they truly represent. According to the SBA – Small Business Administration small businesses:

1. Represent 99.7 percent of all employer firms!
2. Employ about half of all private sector employees
3. Make up 97.3 percent of all identified exporters…
3. Have generated 60 to 80 percent of net new jobs annually over the last decade
4. Create more than half of all non-farm private gross domestic product (GDP)

Here’s the gist of it; these small businesses that have such a marked and profound impact on the US economy, employing the majority of our workforce, are failing at an alarming rate! More statistics from the SBA: In 2007 there were an estimated 637,100 new businesses started. Approximately 560,300 small businesses were closed with approximately 28,322 ending in bankruptcy. Do the math… And here’s the epidemic part. It’s been this way for a very long time and it’s getting worse!

Here’s something else. Again according to the SBA a full one third of new businesses close their doors within the first two years. Fifty six percent close their doors after just four years and sixty nine percent go out of business by year number seven. In summary, our economy is dependant to a very large and growing extent on small businesses, more than half of whom never make it to their fith year anniversary. This, as stated above, is a problem of epidemic proportion and demands immediate attention. 

We will endeavor in this blog to provide information, tips, methodologies, concepts, plans, resources, contact information, success stories and critical thinking in an effort to overcome the small business epidemic in America.

We thank you in advance for your interest and consideration and welcome your comments – It’s going to be an interesting trip!