Small Business Loan Update - Stimulus Bill Helps Bailout If companies fail to pay loans

As we continue to sift dutifully through over 1,000 pages of the stimulus bill (American Recovery and Reinvestment Act of 2009), there is a provision that is not getting much attention, but it could be very useful for small businesses. If you are a small company and have received an SBA loan from your local banker, but are having trouble making payments, you can get a "stabilization loan". That's right, finally save some money goes into the hands of the small businessman, instead of going deep into the lair of the legendary stock market or the big banks. But not too excited. It is limited to very specific cases and is not available for the vast majority of entrepreneurs.

There are some press who courageously support the SBA now provide relief if you have an existing loan business and are having difficulty making payments. This is not a true statement and must be clarified. As has been seen in more detail in this article, this is wrong because it applies to loans problematic in the future, not existing ones.

Here's how it works. Suppose you were one of the lucky few who find a bank to make an SBA loan. We proceed on your merry way, but it does in times of economic crisis and struggling to repay. Remember these are not conventional loans, but loans from a licensed SBA lender that are guaranteed to default by the U.S. government through the SBA (depending on the loan between 50% and 90%). Under the new stimulus bill, the SBA could come to your rescue. You will be able to get a new loan to pay off the existing balance in extremely favorable conditions, buying more time to revitalize your business and get back in the saddle. Sounds too good to be true? Well, you be the judge. Some of the features:

1. Does not apply to SBA loans made before the stimulus bill. As for non-SBA loans, may be before or after the enactment of the bill.

2. Does not apply to loans secured or SBA loans SBA-conventional well? We do not know for sure. This statute simply says it applies to a "small business concern that meets the eligibility rules and section 7 (a) of the Small Business Act" (Section 506 (c) of the new law). It contains pages and pages of requirements that may apply to both types of loans. Based on preliminary reports of some of the SBA, it seems that applies to SBA and SBA loans.

3. These amounts are subject to availability of funding in Congress. Some think that the way we are going with our federal bailout, we're going to be the money before the economy we are trying to save.

4. You do not get this money if you are not a profitable business. Boy, you can drive a truck through that sentence. Our friends at the SBA will determine whether you are "vital" (less than you imagine how it will be when you tell your friends your company was determined by the federal government to be "not viable" and on life support).

5. You must be suffering "immediate financial difficulties." Just to keep out the payments, because you would rather use the money for other needs expansion. How many months need to be delinquent, or how close your foot is the banana peel of complete failure, is anyone's guess.

6. It is not certain, and commentators disagree on the fact that the federal government through the SBA make the loan of taxpayer dollars to private banks or SBA license. In my opinion this is the second. It carries a 100% guarantee and SBA does not make sense if the government itself was making the loan.

7. The loan can not exceed $ 35,000. Presumably the new loan will be "pulling out", or refinance the entire balance in the old one. So if you had a loan of $ 100,000 that you paid on time for several years, but now have a balance of € 35,000 and are in trouble, the boy did not have a program for you. Or you could have a small loan of $ 15,000 and after a short period of time need help. The law says you have to wait a certain period of time so I guess it could be in default after the first couple of months.

8. You can use to create no more than six months of delinquencies monthly.

9. The loan will be for a maximum period of five years.

10. The borrower will pay no interest for the duration of the loan. Interest may be charged, however, will be subsidized by the federal government.

11. Here's the great part. If you receive one of these loans, you must make all payments for the first year.

12. There are absolutely no upfront fees allowed. Getting a loan is 100% free (of course you have to pay capital and interest, after the one-year moratorium).

13. The SBA will decide whether or not collateral is required. In other words, if you need to put restrictions on your property or residence. My guess is that lax from this requirement.

14. You can get these loans until September 30, 2010.

15. Since this is emergency legislation, within 15 days after the signing of the bill, the SBA has to come up with regulations.

Here is a summary of the current legislative language if you have trouble sleeping:

SEC. 506. BUSINESS stabilization program. (A) IN GENERAL-Subject to the availability of appropriations, the Administrator of the Small Business Administration has a program to provide deferred loans to viable (as such term is determined in accordance with the Regulation for the administrator of the Small Business Administration) the concerns of small businesses that have a qualifying small business loan and you experience the immediate financial difficulties.

(B) Eligible borrower-A small business concern as defined in section 3 of the Small Business Act (15 USC 632).

(C) QUALIFYING SMALL BUSINESS LOAN-A loan made for a small business concern that meets the eligibility rules in section 7 (a) of the Small Business Act (15 USC 636 (a)), but does not include loans guarantees ( or loan guarantee commitments made) by the administrator before the date of entry into force of this Act.

(D) Amount of loans guaranteed under this section may not exceed $ 35,000.

(E) the purpose of loans guaranteed under this program will be used to make the periodic payment of principal and interest, in whole or in part, on an existing qualifying small business loan for a period not exceeding 6 months.

(F) OF LOAN TERMS-Loans made under this section are:

(1) carry a 100 percent guarantee, and

(2) have interest fully subsidized for the period of repayment.

(G) REPAYMENT-repayment for loans made under this section -

(1) be amortized over a period of time not exceeding 5 years;

(2) will not begin until 12 months after the final disbursement of funds is made.

(H)-COLLATERAL L'amministratore the Small Business Administration may accept collateral available, including conditional privileges, to guarantee loans under this section.

(I) FEES-The 'Administrator of the Small Business Administration is prohibited charging any processing fees, origination fees, application fees, points, broker commissions, bonus points, prepayment penalties and other fees that may be borne by those requesting a loan for loans in this section.

(J) SUNSET-L'amministratore the Small Business Administration does not issue loan guarantees in this section after September 30, 2010.

(K) for the regulation AUTHORITY OF EMERGENCY-L'amministratore the Small Business Administration shall issue regulations under this Article within 15 days from the date of entry into force of this section. The requirements of notice under section 553 (b) of title 5, United States Code shall not apply to the promulgation of such standards.

The real question is whether a private bank loan under this program. Unfortunately, few do because the statute states that all costs can not be loaded, and how a bank can make any loan of money in these circumstances. Sure, they could make money in the secondary market, but that has dried up, so that it essentially asks for a loan from the goodness of their hearts. On the other hand, carries a first state guarantee 100% so that the bank knows that they will receive interest and have no chance of losing a single cent. Perhaps this work, after all.

But there is another thing that would be of interest to a bank. In a sense, this is a form of federal bailout to go directly to small community banks. They have loans on their books that are in default and could easily jump at the chance to be able to bail them out with this program. Especially if they were the recipients of TARP funds early. Contrary to public sentiment, most of them did not receive any money. But again, this might not apply to the bank community. Since usually pack and sell their loans within three to six months, probably would not even be at fault at that point. It would be in the hands of the investor secondary market.

So this is good or bad for small businesses? Frankly, it's nice to see that saving money is making its way towards small businesses, but most of them prefer to have a loan in the first place, unlike aid in case of default. Unfortunately, this will have a limited application.

Would not it be better if you just expanded our business programs so that more small businesses could get loans? As for the SBA to create a secondary market for loans to small businesses? I have a new idea for the moment forget about the default values, and focus on making available for loans to start-ups or existing businesses looking to expand.

How about having a program able to pay high interest credit card balances? There is hardly a business out there that has not been recently financed through credit cards, simply because banks are not lending. It is not unusual for people to have 50 thousand dollars more on their credit cards just to stay afloat. Speak of saving of great interest. You can imagine how this cash flow would give a small business.

We should applaud the Congress to do their best, at short notice to come up with this plan. Certainly this is a form of welcome for saving small businesses, but I think it misses the mark for most of the 27 million business owners who are simply looking for a loan that can pay, as opposed to a flyer ... .