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The SBA 504 Experts Explain more about HR 5297…
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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,

Chris

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.

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19 Comments

  1. Julian Starr says:

    Your right it has gotten very political! Personaly I would like to see longer term SBA realestate loans from the current 20 – 25 year to 30 years and in some cases 35 to 40 years like HUD is doing when crunching numbers it makes it way easier to run the business

  2. Braudis Pegram says:

    Excellent discourse, Chris; and although I’m not a Republican, I can appreciate pro-capitalism. How much longer before we all understand the task at hand? It appears that the Senator and GOP are contrary and divisive; something that we all need to keep an eye on regardless of our individual politics, and vote accordingly come fall. Let this fall be their fall.

  3. Don Copeland says:

    It will be very interesting to see what kind of response you receive from Dems. on this subject. Please post it.

  4. Keith Wilcox says:

    They need to change the wording so both sides agree.

    The economy is an easy fix.

  5. jmerk says:

    The Usual GOP Excuse

    Why would the government want to be involved in ownership of thosands of small businesses? Republicans at their usual excuses trying to keep the dems from taking credit for small business credit funding.

  6. David Brennan says:

    Chris…you are absolutely right, the small business men are dying out here. I couldn’t get a small business loan to help with cash flow for nothing and I have 4 companies under one umbrella. We are trying hard not to be a statistic but times are getting harder and harder because banks will not help.

  7. Jack Campbell says:

    CHRIS; IF THIS IS THE CASE THEN ALL THE BAILOUT MONEY SHOULD HAVE GIVEN ALL OF US HARD WORKING CITIZENS AND EQUITY STACK IN ALL OF THE BAILED OUT BUSINESS! I DID NOT SEE THAT HAPPEN, THIS IS A CASE OF THE BIG BROTHER SYNDROME!! HAVING CONTROL USING SBA FUNDS OVER SMALL BUSINESS THAT BUILT THIS COUNTRY. I FEEL WE HAVE LEARNED OUR LESSON WITH THIS PARTICULAR PARTY AT THE HELM AND WE JUST WERE RUN AGROUND AND ARE SUFFERING VERY SADLY TODAY WHILE THEY ARE TRYING THE SAME GAME JUST IN A DIFFERENT ARENA!! I GUESS THEY JUST DO NOT GET IT, FREE SMALL BUSINESS’S UP AND START TO DISPERSE MONEY TO ALLOW WHO MADE THIS COUNTRY AND THESE BANKS STRONG & GREAT, SMALL BUSINESS!! THEY ALSO NEED TO KEEP THERE HANDS AS FAR AWAY FROM ANY EQUITY POSITION TO SMALL BUSINESS AS POSSIBLE!

    GOOD LUCK JACK

  8. Tim Moyer says:

    I have been getting your messages and want to thank you for keeping me informed on the political agenda.

  9. Arne McDaniel says:

    Senator Mitch McConnell is a reliable source of disinformation. His approach is damaging to the nation, and counter productive to the work of people like Chris Hurn, who care about the fortunes of small businesses.

  10. Billy Parsons says:

    if you truly are dedicated to the
    future of the country…..then get
    support to repeal the fair trade
    act.
    put the tariffs back
    put the manufacturing back in th u s
    put the american worker back to work
    at decent wages
    get the american worker off poverty
    stop the socialism

  11. Bill McQuinn says:

    McConnell’s comments sound like more “Death Panel” talk to me. The sad part is, enough people buy into the disinformation and scare tactics that they are actually effective.

    I am very concerned that these Republican amendments are primarily designed to load up unfunded costs, so they can now claim the entire bill is a “budget buster”. (Rymes with “fillibuster” – and almost as effective.)

    Clearly, the overriding motivation of Republican leadership is to keep employment utterly in the tank, until after the mid-term elections.

    How’s that for a patriotic, fiscally responsible group, which claims to support entrepreneurs?

  12. Mike Pfeiffer says:

    Chris – Why don’t you just paste a copy of HR5297 to your blog?

    That would help to clarify who the partisan hacks are on your blog.

  13. Clayton Thomas says:

    I like the write up and if only every liberal @ss democrat would quit burying our country into socialism things would be on the upward trend.

  14. Tshombe Williams says:

    I think Mitch O’Connell is full of it just like some of his republican friends and compodrae’s he needs to be voted out.

  15. Jim Riccardi says:

    Chris, before I comment on this bill. I have to say that your marketing is something I envy!

    You are always trying to bring info to the small business that they need through your links and interviews with speakers and authors that will always help us with our small business solutions. You should put something together on your own marketing and data base management procedures, it is truly outstanding.

    I have been a small business owner since I have been in college that was so long ago they had “mixers” back then . . . ask someone over to 55 to explain! Most of my experience is in real estate and financing, both residential and commercial. I have seen the plight of the small business man become so difficult that I see them as shells of the men and women that I knew for so long .Men and women who ran their business with family and community in mind, donated time and money to many local charities and were never afraid to help even a competitor if they needed it.

    So when I see bill HR5297 come along I think WOW this could help!! Then I here about the AMENDMENTS and I here the bill is stalled. I have called all my Congressmen and urged them to move quickly on this bill to give the small business men and women a goal to reach for the great benefits that the SBA can offer.

    Lastly did the republican’s also put an amendment in that wanted to lower the estate tax? What does that have to do with SBA ? Perhaps you could clarify.

    Keep up your great work.

  16. Al Paparelli says:

    Chris:
    Good Job!!!
    Yes, I support HR5297 and all other reaponsible legislation to help small businesses in desperate need of financing.
    Small business commercial and business loans coupled with tax breaks are the incentives required to help create new jobs. New or expanded manufacturing operations in America would be a
    home run for jobs.
    Thank you,
    Al

  17. Richare Vaughn says:

    This is spot on. This “just say no” stuff is getting really old. And I think it could backfire on them at the polls – eventually.

    Obviously “Good Luck Jack” didn’t read Chris’s commentary before he shouted out his nonsense in the comments.

  18. Chris Hurn says:

    Thanks for the kind words, Jim. Unfortunately, I don’t know much about any proposed Republican amendment for this bill that deals with the estate tax. Obviously, there is major ground-swelling to permanently “kill” the estate tax, since it’s basically double-taxation – you were taxed on it when you earn it, then you’re taxed on it when you die before your heirs can get it. It seems patently unfair to me, especially since it disproportionally affects hard-working entrepreneurs the most (contrary to what most still think, there is quite a bit of “churn” in America’s top tax bracket . . . you only need to look at the annual Forbes 400 list to see how many new faces are there and old faces that have fallen off – and most of the folks on it are NOT through inheritance – most didn’t go to college or get graduate degrees either, but that’s a topic for another day). I heard someone once explain a better way to treat the estate tax: “no taxation without respiration.”

  19. Joe Welnack says:

    Mitch McConnell has made so many mistatements that he is no longer credible. I push the “mute” button when he makes a news appearance.

    The Republicans could put in an amendment that Obama leave the country and if the President left they would still find a reason to “just say no”. If Goldman-Sachs, AIG or Bank of America wanted old Mitch to jump he would only have to ask “how far Sir!”.

    I have banged my head against the wall for two years now in obtaining financing for a building I own that is free and clear. Sick of both parties, I am going to leave my buildings vacant. Sometimes the job creators just need to go on strike.

    These Republicans are supposed to be for free enterprise, blah, blah….. Let politics get in the way and they would throw their own mothers to the wolves.

    Thanks Chris for your update. One final thing about taxes, it would be nice for some of us if we HAD a tax liability.

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