To Small Business Owners - Don"t Get Too Excited Over the Small Business Jobs Bill
2010; remember that date.
As of this week, the small business jobs and tax bill (HR 5486), which also provides a $30 billion fund for banks with under $10 billion in assets to increase their small business lending, has finally been signed into law.
So back to 2010.
Since this bill has been grinding around in the Congressional sausage mill for almost a year, it is worth noting that some of the provisions were scheduled to run through2010.
One example is the extension of SBA's 90% loan guarantee that had expired in May.
Now that the bill has finally made it out of the grinder, there are barely three months left in 2010.
What happens then?Are the "through 2010" provisions going to end in three months?If so, the effects of the bill are going to be negligible.
One thing that will survive is a larger loan limit on SBA loans.
But that limit (up to $5 million) is going to do next to nothing to help the average SBA borrower, and could actually have a negative effect.
If a bank can make a $5 million loan as opposed to ten $500,000 loans, it will almost assuredly opt for the $5 million.
Since now that there is a $30 billion fund available to banks to encourage small business lending, there are a couple of flies in the ointment that need to be considered.
First, there is the timing issue.
A bank doesn't just take a million or fifty from the government by writing a check and going through the drive-in window to cash it.
And remember, this $30 billion is a loan.
It is going to have to be paid back to the government no matter how rock-bottom the interest rates are, and many banks are still in the process of shrinking and restructuring their balance sheets which still have bad loans on them and assets that have lost value but have not been written off yet.
So they may not be interested in taking on money from the government to make more loans while they are still cleaning up their bad ones.
It is also going to take some time to get the money into the pipeline and be ready to loan - probably at least the first quarter or maybe the second quarter of 2011.
And the economy and all its problems will be just as bad in six months as they are now, so the economic conditions that have constrained small business lending will be almost unchanged.
Now, suppose a bank does decide to take funds.
Who are they going to lend it to?Bank credit guidelines don't usually favor companies with declining sales, earnings, or both, and there are probably more small businesses than not that are in this situation today.
Also, to lend it, someone has to want to borrow it.
The National Federation of Independent Businesses (NFIB) does a monthly survey of their membership to determine how they feel about current business conditions, prospects, etc.
For the last several months there have been two consistent themes.
One has been the lack of credit, but the more important has been the lack of sales, customers and confidence.
Many small business owners have no desire to borrow right now even if they could until they see a clearer picture of the economy improving and what new government regulations could mean to their businesses.
So even though the bill is a positive step, it is not going to be likely to have the kind of dramatic results that are being trumpeted.
As of this week, the small business jobs and tax bill (HR 5486), which also provides a $30 billion fund for banks with under $10 billion in assets to increase their small business lending, has finally been signed into law.
So back to 2010.
Since this bill has been grinding around in the Congressional sausage mill for almost a year, it is worth noting that some of the provisions were scheduled to run through2010.
One example is the extension of SBA's 90% loan guarantee that had expired in May.
Now that the bill has finally made it out of the grinder, there are barely three months left in 2010.
What happens then?Are the "through 2010" provisions going to end in three months?If so, the effects of the bill are going to be negligible.
One thing that will survive is a larger loan limit on SBA loans.
But that limit (up to $5 million) is going to do next to nothing to help the average SBA borrower, and could actually have a negative effect.
If a bank can make a $5 million loan as opposed to ten $500,000 loans, it will almost assuredly opt for the $5 million.
Since now that there is a $30 billion fund available to banks to encourage small business lending, there are a couple of flies in the ointment that need to be considered.
First, there is the timing issue.
A bank doesn't just take a million or fifty from the government by writing a check and going through the drive-in window to cash it.
And remember, this $30 billion is a loan.
It is going to have to be paid back to the government no matter how rock-bottom the interest rates are, and many banks are still in the process of shrinking and restructuring their balance sheets which still have bad loans on them and assets that have lost value but have not been written off yet.
So they may not be interested in taking on money from the government to make more loans while they are still cleaning up their bad ones.
It is also going to take some time to get the money into the pipeline and be ready to loan - probably at least the first quarter or maybe the second quarter of 2011.
And the economy and all its problems will be just as bad in six months as they are now, so the economic conditions that have constrained small business lending will be almost unchanged.
Now, suppose a bank does decide to take funds.
Who are they going to lend it to?Bank credit guidelines don't usually favor companies with declining sales, earnings, or both, and there are probably more small businesses than not that are in this situation today.
Also, to lend it, someone has to want to borrow it.
The National Federation of Independent Businesses (NFIB) does a monthly survey of their membership to determine how they feel about current business conditions, prospects, etc.
For the last several months there have been two consistent themes.
One has been the lack of credit, but the more important has been the lack of sales, customers and confidence.
Many small business owners have no desire to borrow right now even if they could until they see a clearer picture of the economy improving and what new government regulations could mean to their businesses.
So even though the bill is a positive step, it is not going to be likely to have the kind of dramatic results that are being trumpeted.