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Small Business Loves Obama's Plan

By MELANIE LINDNER, FORBES.COM
Posted: 2009-04-09 16:32:42
Forbes.com

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Obama's $15 billion plan to loosen credit gets high marks from entrepreneurs.

Entrepreneurs and small-business owners who groaned about corporate government bailouts bit their tongues Monday when President Obama announced a plan to inject $15 billion into the small-business loan market.

While there were pockets of hope for small businesses in the American Recovery and Reinvestment Act -- government grants for eco-friendly renovations, tax deductions for capital expenditures and research grants for technology development--for the most part entrepreneurs argued that those potential opportunities still paled in comparison to the billions of dollars flowing to big corporations. (See "Where's The Stimulus For Small Business?")

"For us, this is a different world than the one we were in the day before yesterday," says Chip Mahan, CEO of Wilmington, N.C.-based Live Oak Bank, which lends primarily to veterinary businesses. "I absolutely applaud the decision to buy up [the Small Business Administration-guaranteed] loans. The main difference is in the philosophy of the SBA, which used to be that it would pay for itself. But if you want to stimulate the economy like this administration is attempting to do, you have to try something different."

The $15 billion, coming from the U.S. Treasury Department, will be used to purchase securities backed by the SBA-guaranteed loans in an attempt to jump-start the secondary credit market for small businesses. Banks that offer SBA-guaranteed loans have hit a lending wall in recent months, as the secondary market is frozen, so banks can't get the old loans off their balance sheets to free up capital for new loans.

For small-business owners, the biggest change is the amount of credit available to them. Loans unavailable last week are likely to be attainable and with better conditions than have existed since the start of this recession.

"Traditionally, about half of banks offering SBA guarantees sell those loans to mortgage packagers like investment banks where they're then sold on the market to investors," says Bob Seiwert, senior vice president of the American Bankers Association. "But no one's buying those packages now, so the lenders can't make new loans."

The litmus test, according to Seiwert, is for entrepreneurs to call their bankers and ask, "If I applied for a loan today, would it be available? How much could I get? What would the terms be?"

In addition to buying up SBA-guaranteed loans in the secondary market, Obama announced the commencement of two important small-business provisions in the stimulus package: First, all fees associated with generating new SBA loans--ranging between 2% and 3.7% for 7a loans and 1.5% for 504 loans--will be waived until the end of 2009.

For entrepreneurs holding off on expansion and investment plans, this provision gives them incentive to apply for a loan within the next nine months while they don't have to pay the fees. The fee elimination is retroactive to Feb. 17 when the stimulus package was signed into law. (The SBA will refund fees paid between Feb. 17 and March 16.)

Second, the SBA will raise the portion of each 7a loan that it guarantees from 75% to 90%, making it more attractive for banks to participate in SBA lending, thereby creating more loan opportunities for entrepreneurs.

"The advice you got six months ago isn't relevant anymore," says Seiwert. "It's time to talk to your banker and find out what's available under the new conditions."

2009-04-09 16:18:41
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medfordj3 09:09:02 AM Oct 10 2009

I still cannot get a loan with SBA. Banks don't want to lend any money. My story is.. My wife and I are trying to purchase a 10 month old bakery. We have great credit, no debt only a mortgage. We have 30 yrs combined exp w\ a culinary degree. The Business is selling for 150K (not a lot), and tried 3x's for an SBA 7a. It is either sorry not enough financials on the biz, or collateral isn't sufficient (it has about 130K in retail inventory alone). I hope some else has better luck then we did! Now we are looking for other alternatives. GOD Bless!

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rozkhn 07:08:46 PM Jul 26 2009

I start in the name of God because that is the way a morning is to be started and when rising i repeat i live i n the name of God and i die in the name of our Sustainer.Now what this means is that i start in in the name of God , than rise from sleep and with the permission of our Sustainer. ill continue later . may you all have a blessed day and the people that are recieving the grant money , may u use it to the best of ability to create a dominate business that genarates revenue and spreads it across the rorld..Creates Jobs and less kids on the street." and your business and family ," I am curently an owner of a small clothing store called United Clothing,I do oil paintings and generic brand clothing .. I am developing a web site.. i work as a waitress fri sat and sundays from 8pm to 2 in the morning.. Also i am teaching dandance, like ja. Drowing up i was a very ambitious person, mat was my faviort subject. i ahve just bought a lap top and am so happy that my classes start on the 2

creativeminds916 05:44:48 PM Jul 23 2009

You people forget, this recession did not start when Obama took office....did it??? Do you know the magnitude of the problems he inheirited from our idiot President Bush. That is who is for the rich get richer ....pop your heads out of your ass and put the blame where it should go. My God the man has been in office for barely seven months. He said in the beginning it would not be an overnight fix. Bush had eight years to screw us totally and you think Obama should have made things all better ....all I heard when Bush and Cheney were in office from people like the majority of you posting here,........is "am I bending over far enough".....Obama caught all the backlash of Bushes dealings........

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molegitmoney 01:35:56 PM Jun 07 2009

I feel as most of America has in which the economy has affected over seven million homes in some type of disaster. While we absorb the media as what has happen with Forbes richest list and celebrities, most Americans can change the way they live with a small investment for their dreams to come true by being in business for themselves. My son-in-law showed me a way out. While the product is moving across America we are excited that we can assist so many people.Do You Want To Earn More Money? Earn up to $2,000 to $5,000/mo without leaving your job.. Call now and listen to what my friends have to done! (3min. message) Toll free 1-866-670-0989-leave my code-LEB

jcapo1 11:45:04 AM May 22 2009

I am not a "small business" I am a micro business. We have seen nothing from this administration to help. All of the money went to big business where it is being squandered and with no accountablity. If I ran my business like some of these big businesses I would be out of business.Our government spends penny wise and pound foolishly. Where is my bailout money. Idon't need much just enough to clear my debts, couple hundred K will do. Now being in NY I will have to pay an additional payroll tax because the NY Government didn't have the B--Ls let the MTA raise the train fares. I pay 50% of the fare everytime I go across a NY bridge. The ticket fare goes up 25 cents and the toll goes up 50 cents. I now pay in excess of $8.00 for a round trip on the bridge, train riders pay $4.50. When small businees dries up the country will really go into a depression. I will collect welfare and food stamps, welch on my mortgage and taxes and if they put me in jail, I'll get 3 squares a day, cable TV and

tpuddin34 07:07:32 PM May 11 2009

I'm all for the Obama plan bring it on........We sat and watched the rich get richer for 8 years and look at our world now hope you are happy....

writelatoya 10:58:51 PM Apr 30 2009

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ogwog 06:01:20 AM Apr 24 2009

This article is right on the money. I am currently trying to finance a franchise and last year I was told to forget it, that the banks were not loaning money. Now I am close to getting that financing. Whether I get it or not, the climate has changed from banks just flat shutting the doors in the faces of small businesses to one of banks reopening their doors for business!

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