Seeking economic stimulus

State lawmakers are reviewing the federal economic stimulus package to see if Rhode Island still needs its own $200 million stimulus effort to energize the state’s small-business community.
House Finance Committee members are reviewing the state’s proposal and “what effects the federal stimulus package may have on this, to see if there is anything that may overlap or provide some help” to Rhode Island small businesses, according to Larry Berman, spokesman for House Speaker William J. Murphy. “Nothing has been decided yet,” he said last week.
State fiscal experts are far from the only ones reviewing the more than 1,500 pages of the federal stimulus legislation, which includes $730 million in new funding for the U.S. Small Business Administration nationwide.
The SBA headquarters in Washington, D.C., has established teams of employees who are doing the same in order to prepare rules and regulations to govern implementation of the SBA provisions, according to Mark S. Hayward, district director of the Rhode Island SBA office in Providence.
The $730 million for the SBA contained in the American Recovery and Reinvestment Act of 2009 (ARA) includes $375 million for “temporary” fee reductions or elimination of fees on SBA loans, and up to a 90 percent federal guarantee for “certain loans,” according to a news release from the SBA offices in Washington, D.C.
These provisions seem to mirror – at least to a limited degree – proposals in the Rhode Island plan for a state tax credit for SBA loan fees and a state guarantee of up to 90 percent for up to a total of $25 million of the loan funds pledged by local financial institutions. It is these two proposals in the state plan that House Finance Committee members most intently questioned during January hearings.
The National Small Business Association (NSBA), on its Web site (www.nsba.biz), said the $375 million would be available through September 2010, and borrowers rather than lenders and small banks rather than larger ones will have priority. For just one year, the federal law authorizes the SBA to create a modified 7(a) loan with a guarantee of up to 90 percent, the NSBA said. The SBA currently guarantees 7(a) loans up to 75 percent.
It is details such as these – time limits and who is eligible for the new federal assistance – that Hayward and local lenders are waiting for the SBA to clarify. The SBA has not indicated when it intends to have rules and regulations in place for the federal stimulus, but Hayward said it will be soon. Mike Stamler, SBA spokesman in Washington, said last week the agency is working “as expeditiously as possible.”
Hayward, however, is “absolutely” certain Rhode Island still needs the state’s stimulus plan. He has said many times that the state effort will provide ready access to capital and credit, which he has called the “lifeblood” of small business.
It is possible, Hayward said, that the federal stimulus package addresses SBA loan fees and loan guarantees as fully as the state proposal, but “I don’t know yet because we do not have the regulations yet.”
“If the state moved forward and passed this, and the federal stimulus did address these two issues, it would only address them for the next 18 months,” Hayward said. “And once the 18 months have expired, the small businesses in Rhode Island would be uniquely positioned by already having a continuation in place.”
Since the House finance panel held hearings in January, no action has been taken on the package proposed in December by Gov. Donald L. Carcieri and the R.I. Economic Development Corporation (EDC) that includes more than $200 million in loans and loan guarantees (In addition to the $165 million pledged by local financial institutions, the state proposal includes the $25 million in guarantees, $7 million to recapitalize the small business loan fund, $5 million to increase gap financing and $700,000 to expand the micro-loan program).
A Providence Business News poll has found that at least six of the eight financial institutions that in early December promised a total of $165 million in small-business loans as part of the state’s stimulus package remain committed, with or without a state guarantee. They include: Citizens Bank, $25 million; Bank Rhode Island, $25 million; Webster Bank, $25 million; Washington Trust, $20 million; Randolph Savings, $15 million; and Coastway Credit Union, $25 million.
Two financial institutions, BankNewport, $25 million and Navigant Credit Union, $5 million, said their pledges stand, but lack of a state guarantee could affect who receives the loans.
“Without the credit enhancement of a state guarantee, we’re still inclined to make the money available,” said Tim Draper, vice president of marketing for Navigant Credit Union. “But [the lack of a state guarantee] might make it slightly more difficult for some applicants to qualify.”
SBA district directors like Hayward are reaching out to the lending community to provide financial institutions with “a general idea” of what the federal law contains, Hayward said, and to transmit any questions lenders may have to SBA headquarters for response.
Hayward said he has sent along at least 20 questions from local lenders. “Everybody is asking for clarity,” he said. “That’s what we are asking for.” He encouraged local lenders to submit questions to him for forwarding to the SBA because “it’s important for policymakers to get as much feedback as possible from us.”
Asked how much money Rhode Island and Massachusetts stand to receive from the new SBA funding, Stamler explained that the funds are not allocated by state, but distributed “first-come first-serve” and the benefits will continue “as long as the money holds out.”
Other provisions of the SBA funding contained in the federal bill include: $255 million for a new business stabilization loan program to help small businesses meet existing debt payments, a program Stamler said must be built from scratch; $30 million to expand the micro-loan program; $20 million for technology systems to streamline SBA’s lending and oversight processes and $25 million for staffing to meet the new demands.
The new business stabilization loan program, according to the SBA in Washington, would 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.” Repayment would not have to begin until 12 months after the loan is fully disbursed, the SBA said. •