Greetings from the Gulf Coast Chapter Number 130 located in the Hancock Bank Bldg., 2510 14th Street Suite 105 Gulfport, MS 39501.
Special Announcement from the SBA: Stimulus Package Help For Small Businesses
SBA Applauds Stimulus Bill, Planning Underway For Broadest, Quickest Small Business Impact
WASHINGTON – The American Recovery and Reinvestment Act contains a package of loan fee reductions, higher guarantees, new SBA programs, secondary market incentives, and enhancements to current SBA programs that will help unlock credit markets and begin economic recovery for the nation’s small business sector.
“The tax incentives and credit stimulus elements of the Recovery Act will truly help small business owners affected by the credit crunch, and will provide financing opportunities to help them create new jobs in their communities,” said Acting SBA Administrator Darryl K. Hairston.
“There’s a lot to digest in the legislation, and SBA has established teams to tackle a wide variety of policy decisions, system modifications, regulatory changes, legal requirements, and new program launches authorized by the President and Congress,” said Hairston.
The bill provides $730 million to SBA and makes changes to the agency’s lending and investment programs so that they can reach more small businesses that need help. The funding includes:
· $375 million for temporary fee reductions or eliminations on SBA loans and increased SBA guaranteed shares, up to 90 percent for certain loans
· $255 million for a new loan program to help small businesses meet existing debt payments
· $30 million for expanding SBA’s Microloan program, enough to finance up to $50 million in new lending and $24 million in technical assistance grants to microlenders
· $20 million for technology systems to streamline SBA’s lending and oversight processes
· $15 million for expanding SBA’s Surety Bond Guarantee program
· $25 million for staffing up to meet demands for new programs
· $10 million for the Office of Inspector General
The bill also authorizes refinancing for certain SBA loans so borrowers can expand their businesses on favorable terms, and expands leverage capability for Small Business Investment Companies.
“We are going to be part of the solution, and this bill gives us specific tools to make it easier and less expensive for small businesses to get loans, give lenders new incentives to make more loans, and help restore healthy SBA secondary markets to boost liquidity,” Hairston said, noting also that more details on implementation will be coming over the next few weeks.
The stimulus bill takes a comprehensive approach and attacks several problems facing small businesses at once by reducing fees, guaranteeing a greater share of certain loans, expanding capacity in the Microloan program, providing new loans to help small businesses keep their doors open through economic hardship, as well as new mechanisms to help unfreeze the secondary markets for SBA-backed loans.
Declines in SBA lending volume last year, which are continuing in FY 2009, reflect problems in the broader credit markets, and present hurdles to small businesses that are seeking credit in the current economy. The financial crisis has created a variety of conditions that impact small businesses, including a lack of liquidity in the banking system, a reluctance of many lenders to extend new loans, tightened credit standards, weaker finances at small businesses, and uncertainty about taking on new debt on the part of many entrepreneurs.
The Recovery Act addresses small businesses’ lending problems, and addresses key investment and contracting issues. The bill helps Small Business Investment Companies better leverage investment capital to reach more small companies. The bill also increases the current contract limit for SBA’s Surety Bond Guarantee program, which will help small businesses compete for contracts.
90 Percent Guarantee
The bill allows SBA to raise its loan guarantee from the current levels to as much as 90 percent for some loans. At present, SBA can guarantee loans up to 85 percent on loans up to $150,000, and up to 75 percent on loans greater than $150,000. The 50 percent guarantee on SBA Express loans would remain unchanged. Increasing the SBA guarantee percentage will encourage lenders to extend more capital to small businesses by increasing the share covered by an SBA guarantee.
Business Stabilization Loans
The bill creates a new SBA loan program to provide deferred-payment loans of up to $35,000 to viable small businesses that need the money to make payments on an existing, qualifying loan for up to six months. These loans will be 100 percent guaranteed by SBA. Repayment would not have to begin until 12 months after the loan is fully disbursed. The bill provides $255 million for this new program. These loans will help ensure that small businesses have time to re-focus their business plans in order to succeed in the long run.
Microloans
The bill expands SBA’s Microloan program, which provides small loans (up to $35,000) paired with technical assistance to start-up, newly established or growing small businesses. The bill provides funding to increase loans from SBA to participating Microlenders by $50 million through September 30, 2010, and adds $24 million in grants to provide technical assistance to borrowers. Historically, these loans reach low-income individuals, women and minorities in both rural and urban areas. Expanding this program through the stimulus bill will help ensure these entrepreneurs are not left behind in the credit crunch.
Refinancing
The bill also gives SBA the power to use the 504 Certified Development Company program to refinance existing loans for fixed assets, providing fresh support for small business expansion. This change will help business owners expand their current development projects and create jobs in their communities.
Secondary Market Expansion
The bill authorizes SBA to establish a secondary market for pools of “first lien” loans under the 504 program. These “first lien” loans from commercial lenders currently have no SBA guarantee. The bill authorizes SBA to deploy federal guarantees for pools of these first lien loans, so that they can be sold to investors in a secondary market. Providing liquidity for these first mortgages will help encourage lenders to continue participating in SBA’s 504 loan program, which provides a key source of capital for community development and other projects.
The bill also empowers SBA to set up a Secondary Market Lending Authority that would make direct loans to broker-dealers that participate in the secondary market for SBA-guaranteed 7(a) loans. These broker-dealers would use the funds to purchase SBA-backed loans from commercial lenders, assemble them into pools and sell them to investors in the secondary loan market. This program may help address some of the issues facing the secondary market for SBA loans and may ultimately help SBA lenders make new loans to borrowers.
Investment Program
The bill helps SBA-licensed Small Business Investment Companies (SBICs) and families of SBIC funds better leverage the capital they use to invest in small businesses. The bill sets maximum levels of funding the agency can provide to these companies at up to three times the private capital raised by those companies, or $150 million, whichever is less. It also raises the percentage any one SBIC can invest in a single small business to 10 percent of total capital, and raises from 20 percent to 25 percent the percentage of any licensee’s dollar investments that must be made in “smaller” businesses.
Surety Bonds
The bill also raises the maximum contract amount that can be covered by an SBA guaranteed surety bond from $2 million to $5 million, and, under certain circumstances, for contracts amounting to $10 million, and provides additional funds to cover the costs of expanding this program. Small businesses need surety bonds in order to bid on and obtain many federal and other contracts. SBA guarantees surety bonds to small businesses that private surety companies would not otherwise be able to extend.
Q&A for Small Business Owners
What did the Obama Administration announce today?
The Treasury Department will commit up to $15 billion to help unlock the secondary markets for small business loans. By purchasing these securities, the Treasury Department will facilitate the ability of lenders to make new loans to small businesses by providing confidence that there will be a ready buyer for those loans in the secondary market.
In addition, the Small Business Administration is immediately implementing two key provisions of the Recovery Act – temporarily eliminating certain loan fees and raising guarantee levels on some of its loans. These steps will provide lenders with the security they need to start lending again to the millions of small business owners desperately in need of capital.
Finally, the Treasury Department issued a call for new reporting requirements designed to better track small business lending by banks and unveiled guidance from the IRS for an expanded "carryback" provision that will offer many small businesses a tax refund.
Why will purchasing securities on the secondary market help small business owners?
Under normal circumstances, many banks sell a portion of their loans to companies that pool themtogether and sell them as securities to investors. This provides banks with new capital that they can use to make additional loans. The result is that the secondary markets significantly increase the amount of lending banks can do to small businesses.
Over the past year, however, the secondary markets for 7(a) and first lien 504 securities have ground to a virtual halt. The institutions that securitize these loans have been unable to find buyers for the securities they have already packaged. This has in turn reduced their willingness to purchase new loans from banks. Since banks depend on the secondary markets for liquidity, they have increasingly become reluctant to extend credit to small businesses.
Today’s announcement will help unlock secondary markets by providing assurances that the government will stand ready to purchase 7(a) and 504 first-lien securities. If you apply for a 7(a) or 504 loan at your local community bank, that bank will be more willing to lend because it will have confidence that the Treasury Department will be a ready buyer of the loan in the secondary markets.
Which loans are affected by the fee elimination and higher guarantees?
Beginning this week, the SBA will temporarily raise guarantees and eliminate fees for borrowers on certain of its 7(a) loans. 7(a) loans, which are partially guaranteed by the SBA, are issued by a bank to a small business to support its operations.
Additionally, the SBA has temporarily eliminated fees for borrowers and third party lenders on its 504 Certified Development Company Loans. These loans offer growing small businesses long-term, fixed-ratefinancing for major fixed assets, such as land, buildings and machinery and equipment. These loans are aimed at fostering community development, creating jobs and encouraging modernization.
How do I apply for these loans?
Borrowers apply for loans directly with their lending institutions, including banks, credit unions, and Small Business Lending Companies. The SBA works with thousands of small and large lenders nationwide. Lenders evaluate loan applications under their lending standards and decide whether to:
a) Make the loan through conventional financing -- without a SBA guarantee --because the borrower meets their conventional credit standards;
b) Make the loan with a SBA guarantee if the borrower does not meet conventional standards and is eligible for SBA programs; or
c) Decline to make the loan.
What kind of businesses typically get SBA-backed loans?
Typical 7(a) borrowers are entrepreneurs looking to start, expand or acquire a small business. In many cases, the applicant may have a strong business idea, management ability, and sound financial projections,but may have a shortfall in collateral to secure a loan or equity to put into the business.
In order to qualify for a SBA 7(a) loan, borrowers must be unable to secure conventional commercial financing on reasonable terms and be a "small business" as defined by SBA size standards. In 2008, of the $18 billion in SBA backed loans, 35% went to start-up businesses, nearly 32% ($5.7 billion) went to minority owned businesses, and nearly 23% went to women owned businesses. The most frequently financedindustries in 2008 were services, retail trade, accommodation/food service, construction firms, andmanufacturing.
SBA-backed loans are three to five times more likely to be made to minority and women ownedbusinesses than conventional small business loans made by banks, according to a recent study by the Urban Institute.
Is there a limit on how much I can apply for?
The maximum loan amount for a 7(a) loan is $2 million. For 504 loans, the loan structures and amounts vary since lenders and borrowers each determine how much equity they are putting into the loan. However, for the SBA portion of the loan, the maximum loan amount is either $2 million or $4 million, depending on the purpose of the loan.
For most purposes, the SBA’s maximum guarantee for any borrower remains at $1,500,000, or 75 percent of a $2 million loan.
How soon can I get a loan to help me and take advantage of these new programs?
You can apply immediately to any SBA participating lender to take advantage of these programs.
• Fees will be reduced for 7(a) loans starting this week.
• Fees will be eliminated for 504 loans beginning this week.
• Microloan intermediaries across the country are providing loans of up to $35,000 right now to start-up, newly established and growing small businesses.
Lenders will work with the SBA to process and approve these loans. Once we receive a completed loan package from a lender, the SBA can quickly process applications in just a few days.
U.S. Small Business Administration • Recovery Act: Frequently Asked Questions • 2
Is the elimination of borrower fees permanent and retroactive?
The temporary fee eliminations for 7(a) loans support an overall program level of $8.7 billion, while the temporary fee eliminations for 504 loans support an overall program level of $3.6 billion. Depending onloan volume in these programs, the SBA estimates that it will be able to eliminate these fees on loansapproved through approximately December 31, 2009. Fee eliminations will be retroactive for all eligible loans approved on or after Feb. 17, 2009.
What if I had a 7(a) or 504 loan approved on or after Feb. 17 and already paid the fees? How do I get arebate?
SBA is in the process of developing a refund mechanism and expects to be able to begin issuing refunds by approximately May 1, 2009. If borrowers have already paid lenders for the fees on eligible loans, the lenders must reimburse the borrowers from the SBA refund.
What kind of savings will I see from the temporary borrower fee elimination?
Fees for a 7(a) loan are based only on the guaranteed portion of the loan and depend on the size of the loan. The fees range from 2% to 3.75%
For example, a $300,000 loan with a 75% guaranty would have a guarantee fee of 3%. With thetemporary elimination of fees, you would save $6,750.00 ($300,000 x 75% x 3%). Under the new 90%guaranty your savings would be $8,100 ($300,000 x 90% x 3%).
For a Section 504 loan from a Certified Development Company, the 1.5% application fee that isfrequently charged to small businesses when they apply to the Certified Development Company for a loan will not be charged. For a typical 504 loan of about $600,000, fee savings would equal about $9,000. Inaddition, the SBA charges the first mortgage lender a fee equal to ½% of the first mortgage in a Section504 loan transaction. The SBA will temporarily eliminate that fee as well, further encouraging the firstmortgage lender to get involved with the development project.
I am a small business owner – what does the 90% guarantee mean to me?
It means that the lender will have less risk and a greater sense of security due to the higher guaranteepercentage and will be more likely to extend credit to your small business.
Can I go to any lender in my area to take advantage of these new programs?
Only lenders who have been approved to participate in SBA lending programs can assist you with an SBA-guaranteed loan. Contact your local SBA District Office to obtain a list of approved participants in your area.
Follow this link to locate the District Office nearest you: http://www.sba.gov/localresources/index.html.
What if I was already turned down by a bank in the past six months? Can I qualify for any of these new programs?
You are eligible to apply, but you will need to provide updated financial information that is current within 90 days. Over the past year the financial position of many individuals and businesses has deteriorated along with the economy, making some unfortunately no longer creditworthy.
U.S. Small Business Administration • Recovery Act: Frequently Asked Questions • 3
The banks aren’t lending to me. So how do any of the programs the President announced help me?
Revisit your lender and specifically ask about the Recovery Act and SBA loans. Many of the provisions in the Act provide incentives to lenders to encourage them to start lending again to get more dollars in the hands of the small businesses that need it most. Banks will now have access to more funds and higherguarantees making it less risky and more attractive to lend to small businesses. Also, you can contact your local SBA District Office to obtain a list of SBA-participating lenders in your area.
I own a small business, and my revenue has gone down. The equity in my house has declined and I don’t have any more collateral to pledge. How do the President’s programs help me?
SBA does not have a specific level of collateral that must be pledged. If your business is viable and you have pledged all of your available business and personal assets, a lender may consider making a loan to you with an SBA guarantee.
Additionally, as part of the Recovery Act, SBA is developing a new program to help viable businesses with immediate financial hardships with a short term loan that will help them make payments on theirexisting loans. We are working hard to get this program up and running as quickly as possible.
The Recovery Act includes other initiatives to help small business owners, including targeted tax relief for small business owners, allowing "carryback" of losses from this year for up to the previous five years; reducing the estimated tax payments a small business makes to the IRS from 110 percent to 90 percent; and providing the ability to write off up to $250,000 of certain investments made in your small business.
I have only been in business for two years and don’t have three years of financial statements orbusiness history. Can I get a loan?
Yes, you may qualify for a loan. SBA loan guarantee programs are available to start-up, newlyestablished and growing businesses. You will need to provide whatever financial information you haveavailable and will also be asked to furnish financial projections with assumptions to support your loanrequest.
I got laid off from my job. Now, I want to start a new business, building on my prior skills. I have a good business plan and am working with an accountant and an advisor. Can I get a loan from any of these new programs?
SBA loan programs are available to start-up businesses as well as those that are already established.All applicants must meet certain SBA eligibility and credit requirements. In general, you must be organized for profit, meet SBA specific size standards, and be unable to obtain funding on reasonable terms through traditional lending channels.
When applying for a loan, you must prepare a written loan proposal or business plan. The proposal should outline your business strategy over the next several years and briefly explain who you are, your business background, the nature of your business, the amount and purpose of your loan request, your requested terms of repayment, how the funds will benefit your business, and how you will repay the loan.
SBA has a host of resource partners (http://www.sba.gov/localresources/index.html) that can assist you in developing your plan, as well as online training resources through the Small Business Training Network http://www.sba.gov/services/training/index.html.
U.S. Small Business Administration • Recovery Act: Frequently Asked Questions • 4
I need working capital now to buy inventory and to make payroll. How long will it take to get a loan? How much can I apply for?
You can apply for a loan by talking to a local SBA participating lender today. Once SBA receives a complete application package from your lender, SBA typically responds to the lender within a few business days.
SBA loan programs are available for most sound business purposes including working capital, machinery and equipment, furniture and fixtures, land and building (including purchase, renovation and new construction), leasehold improvements, and debt refinancing (under special conditions). The maximum loan size under SBA’s 7(a) loan program is $2,000,000, although some programs have specific maximums that are lower.
I operate my business from home – does that matter? Can I qualify for a loan?
No, it does not matter. A home-based business must still meet our standard eligibility and credit criteria for all businesses. If you meet all eligibility and credit criteria, you can apply for a loan.
The President mentioned that the $15 billion from the Treasury would primarily be focused on buying loans and freeing up lending for community banks, credit unions and other small lenders. Why?
Community banks, credit unions and other small lenders account for about 40 percent of all SBA-backed loans. Unclogging the secondary market for these local, small lenders will help them provide greater access to capital for the small businesses and entrepreneurs in their communities. While unclogging the secondary market is aimed at providing a funding source for smaller lenders, large lenders may also use the secondary market as a source of liquidity.
What other provisions are in the Recovery Act beyond fee elimination and higher guarantees, and when will they be implemented?
The additional provisions in the Recovery Act include:
• Microloan Expansion: Provides extra funding for loans and technical assistance to SBA backed micr lenders
• ARC Stabilization Loans: Offers 100% guaranteed deferred payment of loans up to $35,000 to help viable small businesses facing immediate economic hardship make payments on existing qualifying loans
• Expanded 504 Refinancing Project: Allows borrows to refinance an existing eligible loan as part of a new 504 small business expansion project.
• Surety Bond Program Expansion: Allows more small businesses to compete for contracts by raising the maximum amount for contracts that qualify for SBA surety bonds to $5 million and up to $10 million for certain contracts.
• SBIC Program Expansion: Increases the maximum levels of funding that SBA can provide to SBICs.
• Secondary Market Guarantee for 504 First Mortgages: Provides liquidity to lenders by allowing SBA to guarantee 504 first mortgage pools sold into the secondary market.
• 7(a) Secondary Market Lending Authority: Increases liquidity in the secondary market for SBA loans by directly lending money to brokers to purchase SBA 7(a) loans.
SBA is working hard to implement these provisions with the goal of having the broadest impact onsmall businesses as rapidly and effectively as possible. Implementation will begin as soon as the rules andregulations are published in the Federal Register.
U.S. Small Business Administration • Recovery Act: Frequently Asked Questions • 5
Chapter Chair: Dave Philo
The Gulf Coast Chapter of SCORE “Counselors to America’s Small Business” is part of a national nonprofit association dedicated to entrepreneur education and the formation, growth and success of the nation’s small business. SCORE volunteers serve as “Counselors to America's Small Business.”
The Gulf Coast Chapter provides free and confidential business counseling tailored to meet the needs of your small business and your personal objectives. The Gulf Coast Chapter also offers workshops, for a modest fee, for both start-up entrepreneurs and in-business small business owners.
SCORE volunteers are real-world professionals with time-tested knowledge who donate thousands of hours to help small businesses succeed. Counselors are experts in such areas as accounting, finance, marketing, management and business plan preparation.
The Gulf Coast Chapter is comprised of about twenty volunteers that provide guidance and counseling to entrepreneurs in thirteen south Mississippi counties as well as providing outreach to several more counties. We look forward to serving you.
Contact this SCORE Chapter to get face-to-face counseling & advice. Or, tap into SCORE's national network of virtual volunteers and ask for small business advice online 24/7. Either way, counseling is free & confidential.
Any suggestions for improvements to this site should be directed to Dave Philo at philos@cableone.net.
Our counselors can provide assistance in developing business plans, business start-up, assistance in finding funding sources, help in developing marketing/sales plans, help in developing financial plans (balance sheets, income statements, profit and loss statements, etc.), human resources, technology, international trade, and many other areas. Give us a call at 228-875-0691 or e-mail us at philos@cableone.net.
SCORE volunteers do not discriminate in any of their SCORE related activities against any person because of race, color, national origin, sex, age, religion, marital status, handicap or sexual preference. Reasonable accommodations for persons with disabilities will be made, if requested at least two weeks in advance. Contact [Dave Philo 6305 Hermosa Drive Ocean Springs, MS 39564 Phone 228-875-0691].
THE FOLLOWING ORGANIZATIONS SUPPORT THE GULF COAST CHAPTER OF SCORE:
Small Business Administration
Merchants and Marine Bank
Hancock Bank
Blossman Gas
Ocean Springs Chamber of Commerce/Main Street
Jackson County Chamber of Commerce
Bloxi Bay Chamber of Commerce
Hancock County Chamber of Commerce
Stone County Chamber of Commerce
Wayne County Chamber of Commerce
Small Business Development Center (University of Mississippi)
Gulf Coast Inovation Center
Mississippi Contract Procurement Agency
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SCORE is a Resource Partner with the U.S. Small Business Administration