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SBA 504 Expert Calls Proposed Direct Lending by the SBA a Disaster . . .
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In today’s edition of The Wall Street Journal, there is an article titled “A Plea for Direct Lending to Small Businesses” which you can read in full by going here. The article focuses on the two sides of the debate on proposed legislation that calls for the SBA to help business owners find willing lenders and, as last resort, issue the loans directly. Yes that would mean the same people who bring you (sometimes — and maybe no more on Saturdays) your mail, the constant money-losing Amtrak, the DMV (at least on the state level) and so forth, would now do small business loans IF the legislation passed. This legislation, SHOCKINGLY, passed a House vote in October and now awaits consideration in the Senate.

Below are my comments — the same ones I posted on the WSJ website as a response to the article — on why I think that direct lending by the SBA would be a mistake:

“Direct lending by the SBA would be a disaster. On this particular stance, the Administration is absolutely correct. The SBA doesn’t have the resources to do this (and they freely admit as much), plus if they mobilized, it would be far too late to accomplish the desired outcomes. The solution is to “tweak” existing SBA programs, like the 504, to provide additional “offerings” currently unavailable in these programs.

With SBA 504 loans, for instance, they cannot be used for refinancing under the present SOP. This is patently unfair, unhelpful, and unacceptable when the other flagship SBA program, the 7 (a), has always allowed refinancing. Despite over $3 billion in authorized funds left unspent last fiscal year (which would have translated into nearly $7 billion in total projects — yes, Congress created an ineffectual ARC loan program with only $255 million in it, when nearly $7 billion COULD have been used), the SBA 504 loan program continues NOT to be used for refinancings. This would be a very easy change that ought to have widespread bipartisan support since this program has operated as zero-subsidy (in other words, not costing taxpayers a dime) for the past 12 years of its 26 year existence. With numerous small businesses unable to refinance their long-term debt with community banks or other lenders (who are tremendously risk-averse at the moment due to unreasonable regulators), this solution would enable small business borrowers to tap their embedded equity (at the 504’s traditional up-to-90% loan-to-cost financing levels and with the least expensive borrowing base available), then use the additional funds to retain jobs, buy more efficient equipment, create jobs, and so forth. Current legislation (HR 4302 and SB 2869) seeks to change this and would be steps in the proper direction — they need our (and your) encouragement.

Incidentally, SBA-guaranteed loans cannot be made to failing companies by statute. If a company doesn’t show net profits, it will be extremely difficult to secure SBA or conventional financing. Tough medicine, but the truth. Companies in this predicament got there because they did not adapt as quickly to the Panic of 2008 and 2009 as they should have (whether their banks were contributors in this or not). We shouldn’t throw good money after bad… but tweaking an existing, very successful SBA program to be more helpful would go a long way and cost us nothing.”

Well, what do you think? And I didn’t even mention that this would put the government in direct competition with the private sector . . . well, maybe that wouldn’t be all bad . . . I think I know which side you win, IF it were a fair fight, but we shouldn’t even go there. Government has other things more pressing to do than Federalize small business loans.

Anyway, leave me a note below, and while you’re in the writing mood, write letters to your Representatives and Senators, explaining to them how some legislation I mentioned above (HR 4302 and SB 2869) would be steps in the right direction. This bill about allowing the government to provide direct lending would be a “train wreck”.

Dedicated to Your Continued Success,


P.S. I know I had also promised you an update on my lobbying efforts on your behalf in Washington D.C. earlier this week, but I thought getting this issue addressed is more pressing, right now.

P.P.S. Don’t forget that purchasing commercial property is still one of the best decisions a business owner can make . . . and that Mercantile Capital Corporation is still making these dreams come true for business owners every day. Even with all the negative news about the banking industry, our total lending volume increased 14.5% from 2008 to 2009, and I fully expect us to grow even more this year. If you or someone you know ought to at least consider owning commercial property, introduce them to me right away by calling 1-866-622-4504 or by emailing It’s never too soon to find the right lending partner for a decision this important.

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  1. Braudis Lee Pegram says:

    One thing for sure Chris: I wasn’t the only one thinking about broadening the SBA’s participation due to the reluctance of the “zombie banks” to lend (something I proposed on your blog last month). You said this was a terrible idea. You were right.

    However, the origination of my opinion(which quite a few, I discovered, erroneously shared) came from the desire for change. Although change should be encouraged, it can lead to disaster if accompanied by lack of resources.

  2. teresa bengoa says:

    I Agree 100% with your position. The loophole for refinancing with 504 opened by president Obama is not efficient an serves a very limited group.

  3. Howard Levine says:

    Having dealt with both Bankers and Bureaucrats, I’ll take SBA Direct Lending any day anywhere. But to be fair, John Dunn notes that SBA simply does not have the infrastructure or staff to do this. I say there are a lot of good SBA pros from myriad lenders in the unemployment line. But what do I know? My T-Shirt only says “Americlean” on it.

  4. Marcus Bienvenu Mavakala says:

    Great! Thanks Chris.

  5. Boyd T Cochrane says:

    Hello Chris: The SBA legislation is a prime example and symptom of a Master Plan to take over control of our entire economy and country. Tragically he was Wright (excuse the pun) on the mark when he said ‘Land of the Greed and the Slave’ except he had the players and characters all mixed up. I look forward to your emails and I stand with you on the side of Freedom for Markets and every American. Best regards, Boyd.

  6. Rick Hoe says:

    You are barking up the wrong tree. As a small business owner I have suffered under the lack of lending from banks. My bank cut off my credit line for NO reason after they were taken over by the FDIC and sold. I have been unable to negotiate anything with the bank that bought my loan even though I have NEVER made a late payment in over 5 years of doing business with the previous bank. I would love a loan from the DMV at least it would make up for the lousy service.

    If you are interested in refinancing my business or even doing a shorter term loan until I can return to profitability please call me.

    Otherwise shut your yap and stop sending me these e-mails that are clearly aimed for the sole purpose of making YOU feel better about the fact that you are not servicing small businesses and promoting the agenda of banks that got a BAIL OUT when my business clearly can’t.

  7. Chris Hurn says:

    Rick –

    “Shut my yap”? I don’t tolerate that kind of talk out of my children to anyone, and I won’t tolerate it from you here. It’s not especially professional or courteous to send comments like that. For that reason, alone, we’ll remove you from our distribution list. Having said that, you’re wrong about a few things, namely:

    1. Your problem with your bank is not unique, however unfortunate it may be. Not getting a response from your attempts to negotiate probably has more to do with the takeover by the government and the government’s regulators of the “new” bank than you realize. And you’re kind of making my point: if you can’t negotiate with them now, why should we give them the absolute power to decide whom to lend to? The power to “not negotiate” and ignore you would be equal to their proposed power NOT to make loans, to make loans only to select groups (for seemingly arbitrary reasons), and to make the process more miserable than you’d ever imagine… not to mention driving the private sector out of this lending area.
    2. Actually, Rick, I AM servicing small businesses and closing loans. Perhaps you haven’t paid much attention to these emails in a while. Our funded volume (ONLY to small businesses) was UP 14.5% in 2009 versus 2008. Since you’re clearly angry at banks, and perhaps rightfully so, aim your frustration there and NOT at someone who’s actually been part of the solution.
    3. I’m not sure what your last point is that you’re trying to make. We did NOT get a bail-out, and are NOT promoting banks’ agendas. We are continuing to be a solution in an otherwise murky small business lending environment.
    4. I’d suggest you focus on getting your company back to profitability – until you do so, no lender will be “bailing” you out.

  8. Diane Roehrig says:

    Chris: You are so right about direct lending by SBA. A few of us can remember how bad it was when they made direct loans in the past.
    SBA does not have the staff, training, technical infrastructure, or mindset to provide access to capital in a timely manner to millions of small businesses. It takes the agency months to issue simple rule changes and respond to technical issues.
    Everyone needs to contact their senators and ask them to support SB2869

  9. Jill says:

    I am sending you all of my financial information that I have acquired while trying to obtain a loan from 13 financial institutions. Having great credit, U.S. Vetran, 100% Native status, full retirement from a government job, I already purchased a beautiful historic building in the downtown district – 1 block away from a Canadian port. I am restoring it for owner occupied upstairs and a BBQ Pub & Eatery downstairs. We have alredy invested 100,000 or our own $ and cannot get a loan . Any thoughts

  10. Jill says:

    I havn’t heard from you – I will try to comtact sources tomorrow.

  11. Dede Breitbach says:

    I have plans to a new small business, specifically a coffee shop, so I’ve been searching the web for inspiration. Reading your posts have give me some great things to think about, and I look forward to reading a lot more of what you have to share!

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