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 email@example.com. It’s never too soon to find the right lending partner for a decision this important.