President Obama to Announce Aid for Small Companies
It does not matter what line of work you are in you have been seeing cutbacks, cost reductions and more cutbacks. We are all being forced to do more with far less. Every one knows people that have lost their jobs to these economic factors.
As in the NY Times on March 15, 2009 ”It’s a huge step in the right direction,” Giovanni Coratolo, director of Small Business Policy at the U.S. Chamber of Commerce, said Saturday. ”In this economy, having the least amount of risk for banks will incentivize banks to lend to small businesses. A lot of small businesses will benefit from this.” [http://www.nytimes.com/aponline/2009/03/15/washington/AP-Obama-Small-Businesses.html?hp]
What is this all about? Essentially if you take a look at the current guarantees issued by the US Government in regards to SBA loans, they have a cap of $20 billion per year. But look a little further and they fall short of this number by over 50%. In 2009 they are expected to fund less than $10 billion. So if they are merely going to adjust the SBA factors, and we have a $10 billion reserve that is not being used, what good is this going to do for us?
So what is the plan? Offsetting some of the risk for the Lenders of the SBA loans and Temporarily reducing some of the fees on some of the SBA Loan programs. The risk offsetting tactic will be to increase some of the guarantees on the SBA Loans that are written.
It is yet to be seen as to whether this a token gesture or an actual action plan for them we will be able determine this in a few months when we can calculate what type of effect this has had on small business being able to access these funds.
If the loans that are out there now are defaulting at say 20% (which is conservative) and the expected default rate is on any given Business Loan traditional lenders will accept is 5% based on their portfolio. The new plan from Obama gives a 5% additional guarantee on the defaults. So when you take a 20% actual default rate, a planned default rate of 5% and a 5% reduction in that risk, what do you get? Yes, that is right10% over the acceptable allotment. Now what happens? The restrictions will not change much if any because we are still over the 5% default rate.
There is the bad news, but there is significant good news here too. Now, finally, there is something being done to try to help the small companies, not just the major corporations. We will need more than this to get the economy moving but this is in the right direction.
There are so many alternatives to SBA or bank loans today that are offered by Commercial Finance Brokers as they access to funds for Accounts Receivable Financing, Export Factoring, Purchase Order Finance, Commercial Equipment Loans and Commercial Real Estate Mortgages. Be sure to do you checking around into the various options available to you as there is a loan available for most circumstances if you have the right Finance Broker.
Wade Henderson is a recognized Expert in the Business Finance World with over 13 years Experience in the Commercial Lending Field and a strong reputation for getting the deal done. Visit his Business Finance Website to put his experience to work for you. Get a totally unique version of this article from our article submission service
