The U.S Small Business Administration has been busier lately because of the federal Small Business Jobs and Credit Act, a measure designed to spur lending and boost economic growth. It’s working, according to Mark S. Hayward, Rhode Island district director of the SBA. Hayward recently answered five questions about the new act.
PBN: The Small Business Jobs and Credit Act has a lot of provisions, but what’s the most crucial portion of the act?
HAYWARD: The act provides $505 million to the U.S. Small Business Administration, which we estimate will support approximately $14 billion in new lending to small businesses. When the Recovery Act provisions expired in May, a queue began for loans that needed the 90 percent guarantee. Upon the Jobs Act’s passage there were about 1,300 small-business loans on the list for funding. In the first week, SBA approved each of the loans, which totaled $1 billion.
The new law also significantly expands what we call the “alternate” size standards that will make more small businesses eligible for 7(a) and 504 loans. If you have less than $15 million in net worth and $5 million in average net income, you could now qualify, which will help many more small businesses use SBA loans to grow their firms and create jobs.
PBN: What portions of the Jobs Act are temporary and what is the deadline for companies to act on them?
HAYWARD: The act enables SBA to extend Recovery Act loans with a 90 percent guarantee to lenders and reduced fees to borrowers through Dec. 31, 2010. These provisions are critical because SBA saw a dramatic jump in small-business lending when the guarantee increased from 75 percent to 90 percent and the fees were waived. We anticipate that extending those Recovery Act provisions will ensure the access to capital that is so critical to keep small businesses in operation and help to create jobs.
The act also provides two important temporary changes. The dollar limit on SBA Express loans has increased from $350,000 to $1 million. Express loans use a streamlined application process with a fast turnaround, usually a few days. With this higher cap, SBA will be able to put even more capital in the hands of small-business owners very quickly. This provision expires on Sept. 27, 2011.
In the coming months, SBA will allow some small businesses to refinance their owner-occupied commercial real estate mortgages into our 504 program. Many of their mortgages will mature in the next few years, and face balloon payments as a result. With real estate values having taken a hit, many of these business owners may have trouble getting a bank to refinance them. Refinancing into the SBA 504 program is a win-win. It will provide the business owner with more stable financing. For lenders who hold those mortgages, it will free up capital to make more small-business loans. We expect to complete the regulations and program guidance for this new program in four to six months. This provision expires on Sept. 27, 2012.
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PBN: What portions of the act are permanent and are now in effect?
HAYWARD: When the bill became law, SBA permanently more than doubled the maximum loan sizes for our two top loan programs from $2 million to $5 million. We know this will help businesses that need more capital to more quickly create jobs. This includes exporters, contractors, franchisees and others. For 504 manufacturing-related loans, the increase is to $5.5 million.
The agency permanently increased the maximum size of SBA microloans from $35,000 to $50,000. This is important for entrepreneurs who need startup capital and business owners in underserved communities who often find it harder to get loans. Our intermediaries involved in the microloan program – in Rhode Island, it is the South Eastern Economic Development Corp. – will also be eligible for more funds from SBA, up to $5 million from $3.5 million.
PBN: A lot of lenders say loan demand has lagged in recent months because businesses are just trying to make ends meet, not seeking loans. Has the act begun to get loans flowing yet?
HAYWARD: Definitely. In the first month of the federal fiscal year, which began on Oct. 1, the SBA approved 46 loans to Rhode Island small businesses totaling $10.7 million. That is an increase of 15 loans and $5.8 million over the same period last year.
Our numbers prove that there is still a demand for capital by small businesses. Between Oct. 1, 2009, and Sept. 30, 2010, SBA approved 457 loans to Rhode Island businesses totaling $98.3 million. That was 79 loans more than the previous year, and the dollar volume of those loans increased by $26.4 million.
The Jobs Act will create a Small Business Lending Fund of $30 billion that will help local community banks increase their small business lending. The fund has incentives for these banks to increase their lending, including lower interest rates on repayment.
PBN: The act also focuses on helping small businesses land federal government contracts. How does it accomplish this?
HAYWARD: Federal contracting with small business is a win-win. It allows the government to benefit from some of the most innovative and responsive people in the world: small business owners. Small businesses in turn get the oxygen it needs to grow and create jobs.
First, the law ensures equal treatment – or “parity” – across federal contracting programs for small business. When awarding contracts that are set aside for small businesses, contracting officers are free to choose among businesses owned by women and service-disabled veterans, as well as businesses participating in HUBZone and 8(a) programs.
Second, the law provides more opportunities for small businesses interested in contracting by eliminating the “competitive demonstration” program, which limited opportunities for small contractors in about 10 industries where they excel, such as construction, landscaping and pest control. The law also makes it harder for agencies to “bundle” contracts, a practice that makes it more difficult for small businesses to compete.
