The Official Blog of the SBA 504 Experts

504 Loan Blog

What we can do to stimulate job growth NOW . . .
  • more-shares
    • Save on Delicious

I’ve heard from a lot of people regarding my blog post from Tuesday – – if you haven’t read it go here to get up to speed. As promised what follows are my proposals that would dramatically stimulate job growth in America.

I propose Phase II – – a “Small Business Growth Act of 2009” to jumpstart our economy into the future. Let’s start by incentivizing investments into new and successful small businesses. President Obama stated on the campaign trail that waiving capital gains for those investing in small businesses was noble public policy. But sadly, this provision was missing in the recent stimulus bill. So many politicians claim to be for small businesses, yet so many seem missing when real progress is needed (we saw this recently with our politicians including cuts in fees for SBA loans in the stimulus bill when it was an access to capital problem, not a cost of capital problem that should have been addressed).

If they’re really serious about developing new job growth markets and supporting innovative small businesses, then this idea of a “free-pass” on small business capital gains needs to become law. On a trial basis (and for the tax revenue-loving legislators to stomach it), we need to waive capital gains taxes permanently for those investors that make equity investments into start-up firms or successful small firms (those with revenues currently less than $100 million) in calendar year 2009. The reason for only limiting it to 2009 investments is that we need private-sector investments NOW, not in 2010 – plenty of cash already sits on the sidelines, but it needs to be put back to work and in the right areas where it will do the most good. Enacting this gives investors, who have lost hope in Wall Street and Big Business investments (where they have virtually zero control), the incentive to put their dollars to work in places where they may have a far greater influence. And if a significant amount is invested, as I believe it would be, our legislators can always extend this provision into 2010, as it is the kind of public policy that always leads to increased tax revenues over time (it’s an acknowledged fact of the Laffer curve).

We’re still spending money to bailout ancient (by today’s standards) companies that are shedding jobs, yet doing nothing for growing firms that are adding jobs. We’re essentially propping-up failure at the expense of strengthening success. This is bad pubic policy. If job creation is what we want, then make it law that small firms hiring new employees in 2009 get a $10,000 tax credit per new hire. At a million new jobs, this only amounts to $10 billion dollars – a veritable bargain compared to the “deal” taxpayers got for bailing out AIG, Bank of America or Citibank. Since millions more with jobs would generate tremendous economic activity and tax revenue, wouldn’t this seem like the thing to do now? Again, doing so only for this year (with an option for next year as it proves itself) stimulates immediately, not later.

Including a payroll tax holiday in this new Small Business Growth Act of 2009 for the remainder of this year would keep money in workers’ pockets and owners’ pockets. This equates to about 16% of compensation saved and immediately gives both parties more money to spend or invest.

My first three suggestions involve tax cuts or credits, but I’d also suggest four additional fixes to SBA lending that needs to be included in this new Act: eliminate the duplicity that exists between their two primary loan programs; increase competitive bidding by the federal government of non-toxic, SBA-guaranteed secondary market debt; raise the current $3 billion limit on the new 100% 1st mortgage-guaranteed SBA 504 loans to $10 billion and make it available for new SBA 504 loans as well; and raise the newly-enacted $250,000 “goodwill” limit on 7(a) business acquisition financing.

By making SBA 504 loans the only source for commercial real estate financing within SBA programs, this frees-up additional capital for 7(a)’s to finance start-ups and working capital. This also helps the small business community by taking away the “dirty little secret” in SBA lending whereby lenders promote inferior loans for commercial real estate purchases to unsophisticated small business borrowers because more fees can be made from those. By having the government competitively bid for SBA-guaranteed debt, it will help thaw those secondary markets that are so critical for bank liquidity and getting capital flowing again. Plus, purchasing these assets should generate positive returns for taxpayers as they have historically. By raising the cap on new 100% 1st mortgage-guaranteed 504 loans, you incentivize lenders to thaw-out their SBA lending and have both programs fairly operate close to the new 90% to 100% guarantee levels. By raising the newly created cap on goodwill financing back to original levels, the SBA can get back to previous levels of business acquisition financing standards, rather than reign-in this critical source of funding when it is most needed. Banks simply won’t finance business acquisitions for small businesses with SBA guarantees.

There you go. Washington needs solutions… and I’ve just given them seven new ones that would jolt America’s small business community into creating even more jobs so desperately needed right now. Will our leaders in Washington have the courage to draft and pass more meaningful and relevant legislation right on the heels of the ARRA? Will they recognize the societal changes underway toward more entrepreneurialism? Or are they just content rearranging the deck chairs on a fateful, sinking ship? Urge them on for more positive, productive change. We cannot afford anything less.

9 Comments

  1. Howard Levine says:

    Chris,

    As usual, a well thought out, logioal and rational plan. Good job! Allow me to present my own thoughts which have as much chance of seeing daylight as do yours.

    1. Federalize the Banks.
    2. SBA – Direct Lending
    3. Automakers – Let them fail and emerge from a prepackaged Bankruptcy free of the UAW; killing Pension and Health plans; obsolete facilities; and with a mandate to build cars people really want or face Chapter 7.
    4. Create a new Federal Bureau, the Bureau of Pork. Install a vegetarian as the Secretary.
    5. Propose a Constitutional Amendment to reduce the size of Congress by 50% across the board. Approtioned representation will continue; we will save the Billions now being wasted on these slugs; and the only real economic fallout will be the large number of unemployed hookers in the District.

    As Al Pacino said in “Scent of a Woman”, “I’m just getting started!”

    Hope you enjoyed my thoughts. Keep fighting.

    Howard

  2. Bill Cofield says:

    Well thought out and presented.

    I believe that our auto maker’s engineering staffs developed fuel efficient engines just after the Arab Oil Embargo in the early 70’s but the management of the companies decided we really didn’t need them at the time and guess where that engineering effort got utilized.

    Anyone remember the inventor and original patent holder for the transistor that jump started the electornics industry? Mr. Leer could not find a manufacturer in the U.S. that was interested and sold it to the Japanese.

    Is it not time that we learned to let these ideas flourish in our own country through new start up manufacturers?

    From the hit I have taken on my investment portfolio, I believe that a start up is no more risky than the big company that can’t seem to visualize the future.

    Keep telling them, Mr. Hurn. Some positive media is all that we need to get rolling again. Some of the talking heads need to hear a loud sucking sound when they get their heads out of where they have them. People have to work. Goods have to manufactured. Cash has to flow.

  3. Dave Mueller says:

    Chris,
    Your first paragraph sums up part of the problem in that “politicians claim to be for small businesses” but do not show up when they need to. Could part of the problem be that small businesses do not contribute enough to successful political campaigns. Follow the contributions to politicans and then reconcile there efforts based on contributions. There is why they talk well for small business but do not provide help.

    Your suggestions on the SBA programs are well stated, but not glossy enough to ever happen. Until people wake up and realize that wealth creation occurs through making it (producing), growing it (producing), or extracting something for use by others then wealth in the United States is not being created and all that is happening is that the wealth that does exist is being reapportioned by government intervention as it deems right. Until politicans understand basic economics the governments will continue to cause crisis rather than solutions. What can be done? Take good ideas as you suggest and champion them in the public sector to try and force change through rather than government being allowed to determine the change.

    It is sad that the FDIC is not offering to insure deposits for new institutions such as Mercantiles. Here in South Carolina we have a similiar case of a savings bank being approved by the regulator but not being able to open because of awaiting insurance coverage. The Independent Bankers Association or someone should be making this a pubic issue but the members are scared of retaliation by regulators. Have you considered chartering Mercantile as a Credit Union now that they have commercial lending authority.

    Keep up the voice as I will support you. (Also, keep hitting them straight as you did in Vegas where we played)

  4. Al Acitelli says:

    Question: Won’t a 100% guarantee have an unintended effect of artificially inflating commercial property values?

    The idea of making the 504 loan the only source for commercial real estate financing within SBA programs is stunningly visionary, and I totally agree that 7a would then have its proper focus for start-ups and working capital.

    Plus, the 504 would soar in awareness and popularity among the banking community that still looks at it as the ditching ground for marginal credit deals.

    Really, the idea is too smart and too practical to ever see implemented.

    Lastly, I so totally agree with raising the cap on goodwill financing, one of the most important ways to stimulate business sales and economic activity.

    Great post sir.

  5. Car Loans says:

    I enjoyed this article so much I am placing the post on my own blog site, as I am certain it will be of interest to anyone involved in the business of blogging.

  6. Ross says:

    I like your comment about how we are spending so much money to prop up these failing companies and nothing to stimulate growth for newer smaller companies.

  7. Judy J. Colston says:

    Chris, your comments, suggestion and Ideas are on target. The Small Business Growth Act of 2009″ reminds me of a concept paper perpared for SBA over 20 years ago on the concept of a Small Business Stock Market. I think we should come up with a strategic to selling the Small Business Growth Act concept to those that can make it happen. I think there is a direct relationship between some of your ideas for the Small Business Growth act and the mandates given to community banks in their charter. If we add to that some CDFI reaources for the US department of The Treasury, this would be a real win-win for small business and our country.

  8. ted Vales says:

    I don’t usually comment on blog posts… but this was a good post.. keep up the good work

  9. Heartburn Home Remedy says:

    Hey, nice tips. I’ll buy a glass of beer to that man from that forum who told me to go to your blog 🙂

Leave a Reply

Your email address will not be published. All fields required.

Back to all Entries