The SBA’s latest attempt at helping the small business community is to ease the restrictions on using 504 loan funds for the purposes of refinancing. This change was announced earlier this week, and is a fine idea, but it unfortunately doesn’t do enough to truly provide the aid that small businesses need right now. Go here to read my comments about this in today’s New York Times article.
The major stipulation that concerns me is that this new rule requires businesses to use the funds for expansion purposes. Don’t get me wrong — I think right now is a great time for companies to consider expanding, given all the discounted assets that are all around us. But the fact of the matter is that not too many business owners are truly in expansion mode right now. I really don’t foresee many new loans being created because of this small change the SBA has announced.
This is a shame, because the total number of 504 loans the SBA has approved this fiscal year is down 41.5% from the same period last year. Total dollar amount funded has dropped 42.5% from last year. It’s apparent that the SBA needs to do more than it did earlier this week to stimulate lending (and this minor change was announced back in February . . . not exactly quick action on stimulating the economy). We need to do something to soak up the billions of SBA dollars that are just sitting on the table right now rather than create a new loan program (like the new ARC loan program with $255 million to help maybe 10,000 businesses with only up to $35,000 per business). The ARC loan program is merely a drop in the bucket of capital for America’s small businesses. Allowing the SBA to free-up some of the billions already approved could make a significant difference . . . only $255 million and only $35,000 per business is nearly an insult to the 6.5 million small businesses with over 5 employees . . . ground zero for economic growth in America.
This change to the SBA 504 loan program is a small step in the right direction — they’ve finally started to put the 504 on par with the 7(a) program in terms of refinancing, which is long overdue. But the SBA will have to fully lift the restriction on refinancing in order to have the impact they want (and we all need) to have for America’s small businesses. I’ll write about a possible, easy solution (H.R. 2527) in my next post . . . so stay tuned.