Incentive: : a positive motivational influence

How is the Recovery Act supposed to help small business owners like me?
The American Recovery and Reinvestment Act of 2009, signed into law by President Obama on February 17, 2009, received applause from the Small Business Administration.

According to the acting SBA Administrator, Darryl K. Hairston, “The tax incentives and credit stimulus elements of the Recovery Act will truly help small business owners affected by the credit crunch, and will provide financing opportunities to help them create new jobs in their communities”.

The two key provisions in the Act that are geared towards helping small business owners are:

• Temporarily raising guarantees to up to 90 percent on SBA’s 7(a) loan program, through calendar year 2009, or until the funds are exhausted. This increase in guarantee levels will help provide banks with the greater confidence they need to extend credit during the current recession, will mean more capital available to small business owners around the country.
• Temporarily eliminate fees for borrowers on SBA 7(a) loans and for both borrowers and lenders on 504 Certified Development Company loans, through calendar year 2009, or until the funds are exhausted. This will mean more capital available to small businesses at a lower cost. The fee elimination is retroactive to February 17, the day the Recovery Act was signed. SBA is developing a mechanism for refunding fees paid on loans since then.

Is my business eligible for an SBA Loan?
According to the SBA, the kind of businesses typically able to get SBA-backed loans Typical 7(a) borrowers are entrepreneurs looking to start, expand or acquire a small business. In many cases, the applicant may have a strong business idea, management ability, and sound financial projections, but may have a shortfall in collateral to secure a loan or equity to put into the business.

Expand, yes I want to expand…

In order to qualify for a SBA 7(a) loan, borrowers must be unable to secure conventional commercial financing on reasonable terms and be a  “small business” as defined by SBA size standards. In 2008, of the $18 billion in SBA backed loans, 35% went to start-up businesses, nearly 32% ($5.7 billion) went to minority owned businesses, and nearly 23% went to women owned businesses.

That would most definitely be me…

SBA-backed loans are three to five times more likely to be made to minority and women owned businesses than conventional small business loans made by banks, according to a recent study by the Urban Institute.

Yippee that’s me!  Woman!

But will you still lend to me even if the crash of the housing market directly impacted by FICO credit score?
According to the SBA, 7(a) loans are meant to assist borrowers who are unable to obtain financing on the same terms through normal lending channels. Loan proceeds can be used for most sound business purposes including working capital, machinery and equipment, furniture and fixtures, land and building (including purchase, renovation and new construction), leasehold improvements, and debt refinancing (under special conditions).

Again this is me. No way to get conventional financing on reasonable terms and I need to purchase equipment.

So let’s try it…
According to the SBA, the route to take when applying for a 7(a) loan is to apply directly with your lending institutions, including banks, credit unions, and Small Business Lending Companies.

The SBA states that they work with thousands of small and large lenders nationwide. Lenders evaluate loan applications under their lending standards and decide whether to:

a) Make the loan through conventional financing — without a SBA guarantee –because the borrower meets their conventional credit standards;

b) Make the loan with a SBA guarantee if the borrower does not meet conventional standards and is eligible for SBA programs; or

c) Decline to make the loan.

I’ve put together a package that consists of income tax statements for 2005-2008, income and expenses for the first quarter of 2009, a request for loan/business plan, and letter of explanation regarding the short sale of our home.

First stop my local bank where I have my business checking, personal checking and savings accounts… Wachovia.

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