As you know, I’ve been sending emails and making phone calls over the last several days to drum up support for HR 5297, the small business bill the Senate has been debating for a week now. A friend sent me a message asking some questions that you may also have, so I thought I’d respond to them here. Here are his comments and questions:
It appears that [HR 5297] was voted down with Republicans leading the way. I heard Mitch McConnell discuss it briefly yesterday [Sunday, August 1st] saying the reason they were against was that it was loaded up with money for Democrats to spend, “Son of TARP” (McConnell’s words). He also said that this bill would make it so that every SBA loan would provide the Government with an equity position in the small business borrowing the funds. What?!? That’s nuts! Who wants those guys appointing board members and asserting authority over the founders and leaders of small businesses? What’s your understanding of this?
Clearly, Senator McConnell is ill-informed about this. There’s no such thing as an “equity stake in small business from the SBA” unless he’s referring to their long-standing SBIC program, the same one that helped out Apple, FedEx, Outback Steakhouses and many others. But that’s only one of the numerous SBA programs that exist for the benefit of America’s small and mid-sized businesses. This bill only really dealt with the lending programs [504 and 7(a)] – – only debt, not equity capital. This is definitely NOT “Son of TARP.” That’s ridiculous. With the earlier bailout monies, Congress and the President (in their infinite wisdom) basically forgot about the primary job-creating sector of the economy: small and mid-sized businesses. Is it any wonder that all their “stimulus” failed to provide any actual stimulation? Spending billions on short-term transfer payments and continuing to extend unemployment benefits does very little to grow an economy. They needed to do something long ago for the small business sector, but they forgot and now with elections this close, they’re playing politics to try to make the other side look worse for it.
The only thing in there that’s even close to TARP is the $30 billion fund for banks to redeploy in making more small business loans. Sadly, because Mercantile is not regulated by one of the “Big Five Regulators,” we cannot participate. That’s right, someone who’s already (WITHOUT government aid) growing their small business loan originations by triple digits over last year [416.67% to be exact, through the first six months], cannot even participate. Someone’s who’s been named the SBA’s “Financial Services Champion of the Year” in two of the past four years, who’s been named “Banker of the Year” by the SBA 504 trade association (and I could go on with many other accolades and awards that demonstrate our expertise and renown) CANNOT utilize this provision. To keep all “non-traditional” lending sources out of the mix smacks of a “good old boys club” AGAIN.
Because of regulatory pressure, most banks are not able or willing to make new commercial loans to small businesses or otherwise. One of the things this bill WOULD HAVE done is allow small business owners who cannot readily refinance their commercial property with their local bank conventionally, to do so with an SBA 504 loan. The 504 loan program is not allowed to do this currently – – never has – – despite its sister program [the 7(a)] allowing it. Unlike the 504, the 7(a) is mostly a floating-rate loan program (not real smart to use for long-term, hard assets like commercial real estate) and frequently requires additional collateral pledged by borrowers (such as a second lien on their homes, inventory and receivables, which doesn’t then leave those assets available when the small business owner needs a line of credit). the program It’s [the 7(a)] that sometimes has contributed to giving the SBA a “black-eye” for a host of reasons I won’t get into here. Suffice to say, Congress continues to let the SBA ONLY allow commercial property refinances with an inferior program – – it’s the kind of thing I just can’t make up if I tried. This bill would rectify that.
As I’ve said MANY times, the 504 loan program is perhaps one of the government’s all-time best programs in terms of NOT costing taxpayers anything. Rather, they’re able to make a nice return on their investment in the program [the historical loss rate is about one-third of what the 7(a)’s has been, but that was BEFORE the Panic of 2008/2009] – – only a few years ago, the fees were such in excess that the government “raided” them to use for entitlement spending. Giving small business owners the ability to truly refinance their commercial mortgages (and maybe pull out some capital to redeploy in shoring-up their businesses in these tougher times) with the least expensive capital available in the marketplace on nearly half their new loans (the 504 second position, which has a government-guarantee on it, usually averages about 100 basis points BELOW market pricing from any commercial lenders and is fixed for 20 years – – pretty much unheard of in the world of commercial mortgages) would be a much more positive use of taxpayer funds than the much-maligned A.R.C. loan program Congress hastily crafted last year. Within a truly successful program (the 504), Congress would hardly be “bailing-out” these relatively healthy small businesses [a business owner does not buy his property if he’s barely making ends meet]. The SBA’s lending mandates, along with the private-sector lenders they work with (such as yours truly) would prevent “throwing good money” at “bad” companies. That simply doesn’t happen with 504 loans, most of whose borrowers are very “bankable” in conventional lending terms.
And to the critics that claim this would only allow small businesspeople to use their commercial real estate as “ATMs” like homeowners did for years up to 2008, that’s absurd. Clearly the critics don’t understand that many small business owners have been cutting expenses, while “leveraging-up” in order to keep their businesses open in this downturn. Plus, business owners make different kinds of decisions than consumers do (i.e. business ones for maximizing profits). If these critics still doubt these facts, then they’re clearly a part of the “nanny-state” that wants to strangle the drive (fueled by the profit incentive) right out of small businesses; they must not trust these job creators to do what’s right – – perhaps they think government can actually create jobs.
Plain and simple, this was fear-mongering by the Senator and others in the GOP. It’s really sad to see, as I believe their party (Republican) tends to be more pro-capitalist and therefore frequently gets my support as a result (that’s what motivates my voting: who’ll help better grow the macro economy and my “micro economy”). But this is a case of political calculation (stone-walling the Administration and the Democratic leadership with filibustering) applied to the wrong sector of our country. This sector has suffered perhaps more than all others – – “Main Street” as it were – – while Wall Street and plenty of other Big Businesses have been bailed out to the tune of hundreds of billions of OUR dollars. Congress and the President pandered to this important sector with a measly 0.89% of the “stimulus funds” in the ARRA back in February 2009, and now nearly 18 months later, they won’t even throw them a “bone” – – a fairly small bone at that in the grand scheme of things.
I think it’s time that all small business owners let their voices be heard this fall and that probably means trying to vote-out “tenured politicians” – – those of both parties who have made a career for themselves living off of the back-breaking efforts of America’s small businesses – – America’s job-creators . . . what I often call the “Productive Class.” Some “Spring Cleaning” this November would be VERY healthy to the national economy and maybe it’ll lure more capitalists to Washington who actually understand the Real World, rather than those who merely want to hide from it and distort it.
If this has been a helpful explanation of my point of view on HR 5297 (and some other hot-button issues for me), feel free to forward this to anyone you know who might also appreciate (or need to read) this information. If you have more questions that haven’t been answered here, let me know in the comments section below or by emailing me at ChrisHurn@MercantileCC.com.
Dedicated to Your Continued Success and that of our country,
P.S. Since I composed this message, here’s what I’ve heard regarding HR 5297:
Republican Senators want to add four amendments to this bill: (1) repeal of the requirements of businesses having to file 1099s, caused by the health care bill [I wholeheartedly agree]; (2) a tax credit for small businesses, introduced by Senator Hatch [fine, more cash in our pockets means letting us decide how to best spend our earnings]; (3) a tax credit on alternative fuels [okay, anything to reduce our dependence on foreign sources of fuel]; and (4) a spending cap, proposed by Senators Sessions (R) and McCaskill (D) [sounds good in theory, but I don’t know the details].
I’ve been informed that Senate Democratic Leader Reid has agreed to three of the four amendments, and the fourth one above is the sticking point. The good news is that it’s a bipartisan amendment. As far as I know, discussions will continue to try and get this bill through the Senate this week – – if not, they’ll have to put it off until September.
P.P.S. If you still haven’t phoned your Senators, please go here and make the 15-second call today to ask for their support of HR 5297.
P.P.P.S. Though we’re following this issue closely, don’t think we’ve taken our eye off the “ball.” We’re still busier than ever, providing loans for some of America’s amazingly resilient business owners every day. If you know of someone who ought to contact us about a commercial property loan for their business, call me at 1-866-622-4504 or email me at ChrisHurn@MercantileCC.com.