What’s Obama’s bold plan?
- The Small Business Administration will step up lending guarantees. The SBA currently guarantees payment on 85 percent of a loan up to $150,000 and as much as 75 percent on loans of more than $150,000. The administration is raising the guarantee to 90 percent, reducing lender risk as an incentive to lending.
- In addition, fees of as much as 3.75 percent of the loan's face value are being waived effective today, and people who obtained loans and paid fees since Feb. 17 qualify for a refund of those fees.
- Obama ordered the Treasury Department, effective March 31, to begin using as much as $15 billion from the $700 billion bank rescue fund to purchase SBA loans on the secondary market, freeing up bank liquidity to make more loans.
That’s it? Another bank giveaway?
He is trying to trick me into taking on debt so that I will grow big enough to fail. But I am not the idiot that he thinks I am. If/when I do borrow money to expand, I won’t involve the federal government. Kraken Enterprises has almost four years of history and two years of demonstrated profitability. Any banker should regard me as a good credit risk.
An SBA loan becomes available only after you’ve been rejected by a private lender. The SBA then guarantees a loan from the same bank that just turned you down. Obama’s bank-friendly largess will undoubtedly make banks more likely to turn entrepreneurs down in the first place, forcing us into the guaranteed arms of the SBA. A cynic might see here a backhanded attempt at nationalizing small businesses.
According to the Internet (distilled from multiple sources), SBA loans carry these advantages and disadvantages:
1. An SBA loan can be stretched over 10-20 years, vs. seven years for typical bank loans;
2. The SBA will lend to businesses that are in trouble;
3. The SBA supports areas in which no financial institution would otherwise bankroll new businesses.
1. The SBA places a lien on the borrower’s property. If I default and the SBA has to pay off the guaranteed principal, it will go after my personal property and assets to protect the taxpayer.
2. SBA loans take up to six months to process.
3. The SBA may require the owner to put up 20% of the funding himself.
Clearly, this move is meant to be a credit lifeline for businesses that are in trouble. It is certainly not going to persuade anyone to take on debt and expand. Not me, anyway.
Sources agree that a borrower should enlist a lawyer and an accountant when negotiating a bank loan in order to limit personal liability. I will tell you this much: I absolutely will not risk my house to borrow money for my business. If that dooms my business to remain tiny forever, so be it.
Obama said that these measures are “a first step”. I will wait to see the next step.
Here’s a little more hatred in the credit card processing field…American Express reclassified my business to Internet Sales and raised my discount rate from 3.25 to 3.5%. I have no idea what my old classification was. American Express doesn’t use resellers, so there’s no appeal or competition – you pay them what they tell you, or you don’t offer Amex. Since the new classification is obviously correct, I’ll resist the temptation to create a new “Reasons to hate American Express” tag.
Amex and Google nullified my effort to reduce credit card processing costs. I suppose changing credit card processors kept the overall increase smaller than it would have been otherwise. (sigh) I give up. The banking industry is determined to restore solvency at the expense of small businesses and consumers.
Google apparently implemented their no-refund policy a month early; my past five deposits have had fees totaling nearly $8 withheld. I emailed Google despite the trivial sum. They answered a completely different question than the one I asked. I restated it. They replied that "Our engineers are looking into it." O RLY? For the moment, I shall content myself with a new “Reason to hate Google”.
Next week's topic: Too Small to Fail