Funds are available for small businesses

By Jerry Chautin

For the AJC

“Who’s watching out for us?” Jay Frank asked. “How can small businesses expect to stay in business if no one will help us?” He and his wife, Adrienne Frank, and their daughter Jenny Frank Lingley, own a small retail store in southwest Florida. Its sales have plunged and the Franks are struggling to make payments on their outstanding debt — a bank loan that is partially guaranteed by the U.S. Small Business Administration.

Similarly, small-business owners nationwide are crying out for help. Hearing their pleas, the Obama administration has empowered SBA with program enhancements to help struggling small-business owners survive and prosper. But the results are mixed.

SBA’s district directors are tasked with disseminating information about its programs to lenders and small-business owners. Accordingly, Terri Denison, the agency’s district director for Georgia, outlined its program enhancements last month to SCORE Atlanta, its nonprofit resource partner that provides free advice to small-business owners. Her presentation was called, “Economic Recovery Assistance for Small Business.”

Denison said that SBA has temporarily elevated most of its loan guarantees to 90 percent from 75 percent. The agency hopes the decreased risk will increase lending.

To encourage small business owners to borrow, most fees have been reduced or eliminated. More dramatically, SBA will pay all the interest for its “America’s Recovery Capital Loan Program,” called ARC.

Its principle payments are delayed for 12 months and then stretched out over five years. Struggling businesses can borrow up to $35,000 for debt relief, including credit-card related obligations. But when Frank, the Florida storeowner, called his lender for an ARC loan, they said “no.”

Most lenders say that they will not receive enough compensation for ARC’s costly processing procedures, the borrowers’ underwriting requirements are too vague and the program’s limited funding is inadequate. Consequently, they are staying away.

Denison noted that the agency wants its lenders to be less aggressive with defaulting borrowers and consider forbearance in cases of temporary hardship.

In a notice to its lenders, SBA wrote, “The agency would remind its participating lenders that such aggressive measures may undermine SBA’s ability to further its mission of aiding and assisting America’s small business community and may contribute to further uncertainty for small businesses and our economy.”

So when Frank spoke with his lender, the banker reduced the payments for several months. “Our family is the typical backbone of our society,” he says. “We are hard working, God fearing, small business owners, with just a small dream of getting ahead, providing for our children.”

The stimulus initiatives are gradually increasing the volume for SBA’s basic program by about 30 percent per month from its lowest point after the credit meltdown. You can borrow up to $2 million for working capital, business expansion, equipment and real estate purchases. It is also suitable for acquiring an existing business.

Most lenders are not funding start-ups or marginal borrowers. When they do, solid collateral such as real estate is required.

For acquiring or constructing commercial real estate, SBA’s 504 program can provide fixed-rate loans for 90 percent of the project’s cost. Examples include owner-occupied, commercial condominiums, offices, warehouses, retail stores, franchises, restaurants, car washes and bowling alleys. Investor-owned properties do not qualify.

“For every $50,000 guaranteed by the SBA, they (the borrowers) must be able to demonstrate that they are creating or retaining at least one job,” says Karen Mills, SBA’s administrator. As part of the federal stimulus initiative, the job-creation formula has temporarily been relaxed to one job per $65,000. SBA does not impose loan-size limitations. However most lenders stay under $10 million.

More recently SBA added a refinancing component for commercial real estate that is currently owned by 504 borrowers. However, the refinancing cannot exceed 50 percent of the cost of the proposed expansion.

Meanwhile, general contractors vying for commercial or government construction jobs get a boost too. SBA increased its maximum surety-bond guarantees to $10 million. It can be an invaluable program as federal stimulus money flows into local projects.

Jerry Chautin’s 30-year corporate and entrepreneurial career was in business lending, commercial real estate lending and mortgage banking.