If there is one common point of frustration among small business owners, it’s this: every newspaper you read is about how Obama says that banks need to help America’s small businesses, yet when it comes to help small businesses, the SBA (a government run agency) offers minimal assistance to struggling business owners.
They rolled out the ARC (America’s Recovery Capital) last year, which was like putting a band-aid on a broken leg. It was supposed to be a $35,000 loan to small businesses who needed help. The problem? The program was tiny, so the money ran out within the first few weeks. In addition to that, nobody seemed to know who qualified for the funds. They program called for the funds to go to viable businesses. Huh? If a business will close without getting this $35K, would you call that business viable? Just a poor program all around.
I get many calls from business owners who purchased real estate via the SBA 504 program. They are struggling to make their payments, and the SBA has no long term options to keep the businesses solvent. In my experience, the SBA is resistant to doing anything beyond short term deferments, which in my opinion do nothing but delay the eventual failure of small businesses for 6 or 12 months. The only way to effectively offer long term relief for borrowers is to extend the loan maturity, but in my experience, that’s just not something they’ll consider under the 504 program because the original loan term is 20 years, and the maximum SBA term is 25 years.
Overall, I do understand the problem the SBA faces when grappling with how to help small businesses. They don’t want to, as bankers say, “lend good money after bad money”, meaning they don’t want to lose more money than they already stand to lose by lending additional funds.
With that said, it would seem to me that steps can be taken to alter the existing debt terms on 504 debt in such a way that it gives small businesses a fighting chance. Would it save every small business? Certainly not. Would it save some businesses, effectively saving the SBA from writing off millions and millions of dollars? I’d have to say that’s true. And here is the kicker: the onus of qualifying borrowers for loan modifications doesn’t fall on the SBA. Instead, it typically falls on the servicing bank, or in the case of the 540 program, the Community Development Corporation (or the CDC). In other words, all the SBA has to do is change its policies, and BOOM, borrowers will have a fighting chance.