At Last
Submitted by civil on July 11, 2009 - 10:09am
At last there is something out of D.C. I can agree with. Somebody, I don't know nor care who, has suggested that the remaining TARP funds be used to give small businesses direct loans. This was the intent of the bank bail outs, to raise the banks liquidity level so they could provide loans. Unfortunately, instead of lending the banks kept the money to make their balance sheets look better. Elisa is a small business owner. She probably knows better than most that business operates on credit. They take out loans in order to pay invoices early and get the 10 day net savings. They need loans to pay their employees while they wait on their debtors to pay them, and they need loans in order to purchase equipment and goods when the market prices are most favorable to them. I don't normally like to see government involved in competition to private enterprise, but in this case, if the private sector (the banks) wont fill the bill, government needs to.
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.......I'm not a genius at economics.......I have heard that 70% of this country's employment is directly tied to "small business".......if this is true....... which I believe it is?........how "small business" could have been overlooked , as I believe they were , is not only a travesty but just plain BAD business if we're trying to get this country on it's feet again.......small business is what made this country grow and achieve greatness......we've seen alot of "mom & pop" stores go by the wayside as casualties of "mega giants".......we ALL like to save money to be sure.....but there has been a price to be paid ......for buying products produced by business in China and other countries..........the least we can do is try to give them a "helping hand" now.....AND it's in OUR best interest anyway.....I agree with the idea of giving the remaining TARP funds to small businesses in the form of direct loans.......I'm sure they wouldn't use this money to just give themselves bigger bonuses and maybe buy a newer jet........to scoot on down to Cancun...........
eldoggg
Just want to let you guys know that the Obama administration hasn't been ignoring small businesses. It created several new programs for the Small Business Administration, and also beefed up current programs already offered by the SBA.
The SBA's America's Recovery Capital Loan program provides up to a $35,000 loan, that is interest free for the first 18 months. The program is only for business that had a good balance sheet going into the recession, but just need a loan now to bridge them over until the economy improves. Cpros Inc. in Blue Springs was one of the first businesses in the nation to qualify for an ARC loan.
The SBA also waived many of the fees that were previously attached to its traditional 504 and 7(a) program loans, which can be a substantial help to many businesses. It can mean up to a $35,000 savings on a $1 million loan.
As for the TARP program, hey, if they want to offer small business loans too, I'm all for it. Most of the big banks are paying their TARP funds back early, because of the negative stigma attached to it. Smaller community banks don't suffer as bad of a stigma from it and are are now accepting the money. Frankly, the TARP funds are at a rate that make them a very attractive source of capital for many smaller banks these days.
As long as the government keeps getting paid back with interest (unlike the situation at AIG and possibly GM as well) I think the program is a winner. Five years from now, that TARP money will be coming back into the budget, with interest.
Trouble with the SBA in the current crises is that as now set up they don't make the loan, they insure the loan to the lending bank. So, first you have to find a bank willing to lend you at all, and some banks wont go along with SBA assurances. Also, unless the rules have changed recently, your business must be at least 2 years old. That rules out start ups. The proposal to use the returned interest from the TARP sets up a direct loan from the SBA. Good move.
The SBA had it's guarantee percentage boosted to 90 percent, and in today's market, with banks and their regulators focusing on reducing risk, that goes a long way to getting banks more inclined to make a loan. But the SBA is picking out companies it believes have the best chance to survive, so they don't just end up flushing money down the toilet, like we're doing at AIG.
But the real lingering problem with getting banks to make any loan at all - including an SBA loan - is related to real estate values. Business owners are showing up with commercial property values worth up to 40 percent less than the last time they went to the bank. Banks worry that the underlying collateral backing up the loan will continue to deteriorate. Then you throw uncertain future cash flow projections into the mix and it's really gumming up the works. The SBA's 90 percent guarantee alleviates much of those concerns.
What Civil said about start-ups is true when it comes to the ARC loan, but that program isn't designed for start-ups. The SBA does have some programs designed to help start-ups, but they aren't getting alot of use right now. Basically, it's because there aren't that many people willing to start a business in the middle of a horrible recession. People are either purchasing existing businesses with strong balance sheets, or sitting on their hands and waiting for the economy to improve before risking their life savings on a start-up. If you think about the risk related to a start-up, and compare that to people's declining appetite for risk, it makes sense that banks, private equity firms, mezzanine funds and other sources of capital aren't very willing to invest in start-ups these days.
That doesn't mean start-ups aren't happening at all, just that it's a very difficult environment. Basically you better have a lot of your own money to put into the new venture, a lock solid business plan and a strong, established relationship with your bank or alternate funding source if you're planning to start a business.
............duly noted.......good to know......
eldoggg