President Obama’s Budget Overview Backs $28 Billion in Small-Business Credit for FY 2010

President Barack Obama’s FY 2010 Budget Overview offers full support for the U.S. Small Business Administration’s credit programs, authorizing SBA to support loan guarantees of $28 billion to small businesses.

The FY 2010 Budget Overview provides a broad outline of the President’s budget priorities -- including an appropriation for SBA of approximately $700 million. The full budget proposal with account level appropriation details is scheduled for release in April.

The spending cited in the broad proposal would be in addition to the $730 million funding provided for SBA credit programs in the recently enacted Recovery Act. That Act -- for which most spending is targeted for use in 2009 and 2010 -- authorizes SBA to raise guarantee percentages on some SBA loans to 90 percent, temporarily reduce fees on SBA-backed loans, expand funding for Microloans, and raise the maximum size of SBA-guaranteed surety bonds.

The bill outlines maximum authorization levels for SBA credit programs well above current demand for those programs. It sets a maximum of $17.5 billion for SBA’s 7[a] General Business Loan Guarantee program; $7.5 billion for the 504 Certified Development Company Loan program; $3 billion for the Small Business Investment Company [SBIC] debenture program; and $25 million for the Microloan program.

The bill also provides for $1.1 billion in direct disaster loans, and provides for the launch of a pilot program to test the use of SBA-guaranteed loans as part of the agency’s response to disaster declarations.

Aside from those credit provisions, the proposal:
* Sustains funding for the agency’s technical assistance and training programs
* Improves federal contracting data
* Continues reviews of small-business size standards to help improve targeting of federal contracting opportunities for small businesses
* Modernizes core agency information systems
* Streamlines loan processes
* Enhances human capital resources

The Budget Overview also includes the Obama Administration’s Small Business and Community Bank Lending Initiative, to expand small-business credit availability and affordability by unfreezing secondary markets for small-business loans as part of the larger plan to revive the flow of credit in the economy.

United States Senate Committee on Small Business and Entrepreneurship Chair Mary Landrieu [D-La.] and Ranking Member Olympia J. Snowe [R-Maine] today commented on the SBA components of President Barack Obama’s budget. They're hopeful the additional funding will be spent on the most vital SBA programs after the agency’s funding was cut by 28 percent over the last eight years -- the biggest cut of any federal agency.

“President Obama’s budget demonstrates that he will continue to make small-business recovery a top priority,” Sen. Landrieu said. “Increasing the SBA’s budget, coupled with $730 million for the agency included in the American Recovery and Reinvestment Act passed earlier this year, will put the SBA in a much better position over the next two years as it works to assist the nation’s small businesses and entrepreneurs. We have a long way to go to recover from the deep cuts of the last Administration, but this is an important step in the right direction.

“While we are still awaiting details on where the additional funding will be spent, I am hopeful that it will go to important programs, such as small-business lending, Women’s Business Centers, Small Business Development Centers, business assistance for veterans looking to start their own business, technical assistance for microbusinesses, and assistance to help small businesses -- many of them owned by women, minorities and veterans -- compete for and win federal contracts.”

“While I am disappointed that the President’s proposed budget for the SBA does not fully restore the funding cuts of the last eight years, it is a welcome and refreshing change from the previous administration’s SBA budget requests,” said Sen. Snowe.

“As former chair and now ranking member of the Senate Committee on Small Business and Entrepreneurship, I have seen the devastating effects of the SBA’s budget cuts on our nation’s small businesses,” Snowe added. “While I am withholding full judgment until I am able to review the complete Fiscal Year 2010 budget -- in order to see how President Obama recommends allocating additional funding -- I am pleased that a new emphasis has been placed on helping our nation’s true job generators succeed. It is critical that the additional funds be allocated in a manner that will bolster the SBA’s core non-credit programs.

“I will continue to review the overall budget with a particular emphasis on its potential effects on small businesses, to better determine its overall potential impacts on small businesses -- including addressing the small-business health insurance crisis, a top concern for small businesses across our nation.”

GoodBiz113's take: It's going to take awhile to recover from the Bush administration's virtual eight-year negligence of America's small-business needs. President Obama's FY 2010 budget marks a major leap for America's small-business owners and entrepreneurs -- the ever-growing backbone of our nation's economy. It delivers on his campaign's multifaceted plan to support small business and, from all indications, is just the beginning of good things to come. Thank you, Mr. President, for helping us to finally move forward.

SOURCES: Barack Obama and Joe Biden's Plan for Small Business, FinancialStability.gov, Recovery.gov, U.S. Senate Committee on Small Business & Entrepreneurship, U.S. Small Business Administration, WhiteHouse.gov
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SBA Applauds Stimulus Bill; Planning Underway For Broadest, Quickest Small-Business Impact

Yesterday, President Barack Obama signed the $787 billion economic stimulus bill -- AKA the American Recovery and Reinvestment Act of 2009 -- into law in Denver, saying, "We have begun the essential work of keeping the American Dream alive in our time."

The American Recovery and Reinvestment Act contains a package of loan fee reductions, higher guarantees, new U.S. Small Business Administration [SBA] programs, secondary market incentives, and enhancements to current SBA programs that will help unlock credit markets and begin economic recovery for the nation’s small-business sector.

"The tax incentives and credit stimulus elements of the Recovery Act will truly help small-business owners affected by the credit crunch, and will provide financing opportunities to help them create new jobs in their communities," said Acting SBA Administrator Darryl K. Hairston.

"There’s a lot to digest in the legislation, and SBA has established teams to tackle a wide variety of policy decisions, system modifications, regulatory changes, legal requirements, and new program launches authorized by the President and Congress," Hairston noted.

The bill provides $730 million to SBA, and makes changes to the agency’s lending and investment programs so that they can reach more small businesses that need help. The funding includes:
* $375 million for temporary fee reductions or eliminations on SBA loans, plus increased SBA guaranteed shares -- up to 90 percent for certain loans
* $255 million for a new loan program to help small businesses meet existing debt payments
* $30 million for expanding SBA’s Microloan program -- enough to finance up to $50 million in new lending, plus $24 million in technical assistance grants to microlenders
* $20 million for technology systems to streamline SBA’s lending and oversight processes
* $15 million for expanding SBA’s Surety Bond Guarantee program
* $25 million for staffing up to meet demands for new programs
* $10 million for the Office of Inspector General

The bill also authorizes refinancing for certain SBA loans -- so borrowers can expand their businesses on favorable terms -- and expands leverage capability for Small Business Investment Companies [SBIC].

"We are going to be part of the solution, and this bill gives us specific tools to make it easier and less expensive for small businesses to get loans, give lenders new incentives to make more loans, and help restore healthy SBA secondary markets to boost liquidity," Hairston said, noting also that more details on implementation will be coming over the next few weeks.

The stimulus bill takes a comprehensive approach, and attacks several problems facing small businesses at once by reducing fees; guaranteeing a greater share of certain loans; expanding capacity in the Microloan program; providing new loans to help small businesses keep their doors open through economic hardship; as well as new mechanisms to help unfreeze the secondary markets for SBA-backed loans.

Declines in SBA lending volume last year, which are continuing in FY 2009, reflect problems in the broader credit markets, and present hurdles to small businesses that are seeking credit in the current economy. The financial crisis has created a variety of conditions that impact small businesses -- including a lack of liquidity in the banking system; a reluctance of many lenders to extend new loans; tightened credit standards; weaker finances at small businesses; and uncertainty about taking on new debt on the part of many entrepreneurs.

The Recovery Act addresses small businesses’ lending problems, and addresses key investment and contracting issues. The bill helps Small Business Investment Companies better leverage investment capital to reach more small companies. The bill also increases the current contract limit for SBA’s Surety Bond Guarantee program, which will help small businesses compete for contracts.

Among the specific SBA-related components of the Recovery Act:

90 Percent Guarantee
The bill allows SBA to raise its loan guarantee from the current levels to as much as 90 percent for some loans. At present, SBA can guarantee loans up to 85 percent on loans up to $150,000, and up to 75 percent on loans greater than $150,000. The 50 percent guarantee on SBA Express loans would remain unchanged. Increasing the SBA guarantee percentage will encourage lenders to extend more capital to small businesses by increasing the share covered by an SBA guarantee.

Business Stabilization Loans
The bill creates a new SBA loan program to provide deferred-payment loans of up to $35,000 to viable small businesses that need the money to make payments on an existing, qualifying loan for up to six months. These loans will be 100 percent guaranteed by SBA. Repayment would not have to begin until 12 months after the loan is fully disbursed. The bill provides $255 million for this new program. These loans will help ensure that small businesses have time to re-focus their business plans in order to succeed in the long run.

Microloans
The bill expands SBA’s Microloan program, which provides small loans [up to $35,000] paired with technical assistance to start-up, newly established or growing small businesses. The bill provides funding to increase loans from SBA to participating Microlenders by $50 million through Sept. 30, 2010, and adds $24 million in grants to provide technical assistance to borrowers. Historically, these loans reach low-income individuals, women and minorities in both rural and urban areas. Expanding this program through the stimulus bill will help ensure these entrepreneurs are not left behind in the credit crunch.

Refinancing
The bill also gives SBA the power to use the 504 Certified Development Company program to refinance existing loans for fixed assets, providing fresh support for small business expansion. This change will help business owners expand their current development projects and create jobs in their communities.

Secondary Market Expansion
The bill authorizes SBA to establish a secondary market for pools of "first lien" loans under the 504 program. These "first lien" loans from commercial lenders currently have no SBA guarantee. The bill authorizes SBA to deploy federal guarantees for pools of these first lien loans, so that they can be sold to investors in a secondary market. Providing liquidity for these first mortgages will help encourage lenders to continue participating in SBA’s 504 loan program, which provides a key source of capital for community development and other projects.

The bill also empowers SBA to set up a Secondary Market Lending Authority that would make direct loans to broker-dealers that participate in the secondary market for SBA-guaranteed 7[a] loans. These broker-dealers would use the funds to purchase SBA-backed loans from commercial lenders, assemble them into pools, and sell them to investors in the secondary loan market. This program may help address some of the issues facing the secondary market for SBA loans and may ultimately help SBA lenders make new loans to borrowers.

Investment Program
The bill helps SBA-licensed Small Business Investment Companies [SBICs] and families of SBIC funds better leverage the capital they use to invest in small businesses. The bill sets maximum levels of funding the agency can provide to these companies at up to three times the private capital raised by those companies, or $150 million, whichever is less. It also raises the percentage any one SBIC can invest in a single small business to 10 percent of total capital, and raises from 20 percent to 25 percent the percentage of any licensee’s dollar investments that must be made in "smaller" businesses.

Surety Bonds
The bill also raises the maximum contract amount that can be covered by an SBA guaranteed surety bond from $2 million to $5 million -- and, under certain circumstances, for contracts amounting to $10 million -- and provides additional funds to cover the costs of expanding this program. Small businesses need surety bonds in order to bid on, and obtain, many federal and other contracts. SBA guarantees surety bonds to small businesses that private surety companies would not otherwise be able to extend.

GoodBiz113's take: The American Recovery and Reinvestment Act promises far-reaching opportunities for U.S. communities, citizens, lenders and investors -- as well as our country's 26 million-and-counting small businesses. The stimulus package's thoughtful and bold components deserve full faith and support across the political spectrum, so that President Barack Obama -- and, thus, America as a whole -- can succeed. To track the Recovery Act's progress, bookmark Recovery.gov [www.recovery.gov/] and/or FinancialStability.gov [www.financialstability.gov/].

SOURCES: Associated Press, Recovery.gov, U.S. Government Printing Office, U.S. Small Business Administration
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Sens. Landrieu, Snowe Enthusiastic About White House Plan to Unlock Frozen Credit Market and Stimulate SBA Lending

Yesterday, U.S. Senate Committee on Small Business and Entrepreneurship Chair Mary Landrieu [D-La.] and Ranking Member Olympia J. Snowe [R-Maine, pictured] commented on President Barack Obama’s ambitious new plan to increase access to capital for small businesses.

Chair Landrieu and Ranking Member Snowe joined Congressional lawmakers, business leaders and community bankers in a meeting with President Barack Obama yesterday morning to discuss the plan, which will take immediate steps to unlock frozen credit markets, and temporarily roll back lending fees and bolster bank liquidity to ensure that small firms can have continued access to credit.

“President Obama and Secretary Geithner have laid out a bold, ambitious agenda aimed at encouraging lending to small businesses -- the engines of economic recovery,” Sen. Landrieu said. “The financial crisis has hit small businesses where it hurts the most: drying up access to capital as banks are becoming more hesitant to lend.

“The frozen secondary market for SBA-backed 7[a] and 504 loans has discouraged new lending to small businesses, but the Obama administration’s plan to purchase SBA-backed 7[a] and 504 loans will allow banks to leverage existing SBA loans to provide new loans to entrepreneurs looking to grow and create more jobs. By increasing the SBA loan guarantee to 90 percent and temporarily eliminating fees on 7[a] and 504 loans, President Obama’s plan will reduce the risk that lenders face when they make new loans, while making those loans more affordable to small business owners.

“I was proud to work with my colleagues on the Appropriations Committee to get these provisions included in the American Recovery and Reinvestment Act. By getting capital flowing again to small businesses, we will help get the country out of the economic crisis. Washington must focus on small businesses.

“I look forward to chairing a hearing of the Small Business Committee on Thursday that will look into the factors that have caused many entrepreneurs to be shut out of vital credit markets. The President’s announcement proves that he also understands the importance of small businesses to our economy.”

Sen. Snowe was also enthusiastic about the White House economic-stimulus plan. “I am pleased that President Obama called today’s summit to address the credit crisis that is preventing our nation’s small businesses from accessing the capital that's so vital to maintaining and expanding their operations,” she said. “Today’s implementation of critical provisions that Sen. Landrieu and I fought to include in the American Reinvestment and Recovery Act -- to provide fee relief to borrowers and lenders in the SBA’s 7[a] and 504 loan programs, as well as an increased guarantee rate for 7[a] loans -- comes not a moment too soon.

“The President’s willingness to use TARP funds to directly purchase SBA loan pools, which I have expressed my support for with the Administration, is a much-welcome step that will provide liquidity into secondary markets and generate additional financing dollars for small businesses nationwide.”

SOURCES: Politico, U.S. Senate Committee on Small Business & Entrepreneurship
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