$100 Million Increase for Small Business: Good or Bad?
The Obama administration is asking that Congress allocate another $100 Million to the Small Business Administration to assist small businesses in getting access to credit. This is a relatively small amount. Think of it this way, it represents one hundred (100) - million ($1,000,000) loans. Using that analogy, that would be equivalent to 2 loans for each state in the union. That's not a lot of stimulus.
Or let's say that the loan amounts average $250,000 - that represents 400 loans (or approximately 8 loans per state). Now don't misunderstand, SBA loans aren't allocated to each state. No, it's first come, first serve by the bankers that are willing to make these loans. And there's something else you should know, an increase in "funding" by Congress is a misnomer. Banks lend the funds for SBA loans. The Small Business Administration provides a guarantee up to 90% of the loan amount. What the government is doing is "allocating" its guarantee for more loans to be made.
It's really a "non-cash transaction" sort of like depreciation expense on your Profit and Loss statement. Depreciation represents money you SHOULD put away to replace the equipment you are using. And at the same time, it reduces your tax bite. The allocation of "funds" for the SBA guarantee doesn't cost the tax payer anything UNLESS and UNTIL, the actual loan goes bad. Most of the time, the loan will perform and the guarantee is never called upon. Therefore, no money is issued from the government to the bank.
I'm not an Obama fan but I do support small business. And without the SBA guarantee, banks simply won't lend to small businesses right now. Bank's credit policies are extremely conservative mostly because they have "bad assets" on their balance sheets and can't afford to take on additional risk.
Utilizing the SBA program is the best idea we've got right now to get liquidity to small businesses. What is a bad idea is the forced health care that Obama is pushing. That alone will cause many "unintended consequences" like increased taxes, more burden on small business, stifled growth, inferior care, etc.
So, yeah, I'm all for increasing the "allocation of funds" for SBA loans because those funds will only be utilized IF the borrower fails. Most of the time, that's not going to happen.
Or let's say that the loan amounts average $250,000 - that represents 400 loans (or approximately 8 loans per state). Now don't misunderstand, SBA loans aren't allocated to each state. No, it's first come, first serve by the bankers that are willing to make these loans. And there's something else you should know, an increase in "funding" by Congress is a misnomer. Banks lend the funds for SBA loans. The Small Business Administration provides a guarantee up to 90% of the loan amount. What the government is doing is "allocating" its guarantee for more loans to be made.
It's really a "non-cash transaction" sort of like depreciation expense on your Profit and Loss statement. Depreciation represents money you SHOULD put away to replace the equipment you are using. And at the same time, it reduces your tax bite. The allocation of "funds" for the SBA guarantee doesn't cost the tax payer anything UNLESS and UNTIL, the actual loan goes bad. Most of the time, the loan will perform and the guarantee is never called upon. Therefore, no money is issued from the government to the bank.
I'm not an Obama fan but I do support small business. And without the SBA guarantee, banks simply won't lend to small businesses right now. Bank's credit policies are extremely conservative mostly because they have "bad assets" on their balance sheets and can't afford to take on additional risk.
Utilizing the SBA program is the best idea we've got right now to get liquidity to small businesses. What is a bad idea is the forced health care that Obama is pushing. That alone will cause many "unintended consequences" like increased taxes, more burden on small business, stifled growth, inferior care, etc.
So, yeah, I'm all for increasing the "allocation of funds" for SBA loans because those funds will only be utilized IF the borrower fails. Most of the time, that's not going to happen.
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