As published in the May 1, 2009 Toledo Business Journal
Gil Goldberg
US Small Business Administration (SBA),
Cleveland District Office
Stimulus bill to increase SBA lending
Toledo Business Journal recently interviewed Gil Goldberg, district director, US Small Business Administration (SBA), Cleveland District Office. He shared the following thoughts.
Toledo Business Journal: With the tight credit markets, the SBA’s role in small business financing is more important than ever. Can you discuss the number of companies in our market area that the SBA assisted with financing in the past year?
Gil Goldberg: For the Fiscal Year that ended September 30, 2008, the SBA [Cleveland District Office] helped 1,312 borrowers; that is down from 1,900 borrowers the year before. So, as you can see, the recession and the tightening credit are having an effect on our lending. That makes us off about 31%.
That [decrease] is typical, because banks usually tighten credit when non-accruals – the loans that aren’t being paid – continue to grow. And right now, they’re continuing to grow; they usually don’t start to loosen up until they see that (non-accruals) reach a plateau, and they haven’t reached a plateau, yet.
If you look at where we are this year, from October 1 through the middle of March, our lending was off 52% in total loans compared to the first 5-1/2 months of 2008. So, it still hasn’t turned around yet, which reflects the fact that banks are still tightening credit as well as the fact that demand has decreased significantly, because a lot of businesses are staying on the sidelines, waiting for the economy to turn around before they embark on any kind of inventory buildup or expansion. There’s no need for them to borrow to purchase inventory now, when they’re having difficulty selling the inventory they have. They don’t have many customers coming through the door.
But once they see that [turn around], they’ll start to borrow again. That plus the tightening of credit are the things holding back credit and affecting demand.
The SBA believes that the changes in our programs enacted by the recent Recovery Act legislation signed by the President on February 17 will allow lenders to loosen the credit spigot and increase the availability of capital to small business.
TBJ: Did the SBA obtain additional funding for small business lending through the recently passed American Recovery and Reinvestment Act?
GG: The Recovery Act provided funding to the SBA, which has enabled us to modify and expand our programs for access to capital. We have increased our guarantee to 90% and have waived all fees associated with our loans. These two changes will remain in effect until the end of the year or until funding runs out. These two changes are available right now.
We also received funding to start a brand new program called American Recovery Capital (ARC), which will allow businesses that are in default on a loan to access a 100% guaranteed bank loan to make payments on said defaulted loan.
In addition to the 100% guarantee, the repayment on the ARC loan does not begin for 12 months. Thus providing the borrower with additional breathing space to make it through the recession.
The ARC loan can be up to $35,000 and can only be used to make up to six months payments on a defaulted loan. In addition to the 100% guarantee to a bank on said loan, the legislation also provided the SBA with funding to subsidize the interest rate on said loan. There is one caveat here, and that is that the borrower, even though in default, is still deemed a viable company that can make it through the recession. This program is not in effect at this time, but we hope it will be available in the near future.
Another change that we are able to offer due to the legislation is the ability on a 504 loan for a borrower to pull equity out of machinery and equipment or real property provided it is part of an expansion project. The amount of equity that can be pulled out is limited to 50% of the expansion project. This program is not in effect at this time, but we hope, like the ARC program, that it will be available in the near future. 504 loans are business expansion loans.
TBJ: Has funding been put in place for temporary fee reductions or eliminations of some SBA loans?
GG: Yes, we waived all the fees except for short-term borrowing (anything less than a year). Congress appropriated a certain amount of money for fee reductions.
For a $2 million loan, that could be a savings of over $50,000 for a borrower. That is a substantial savings.
TBJ: What role do you see small businesses playing in the recovery from the current economic recession?
GG: Small business over the last 20 years has always been the job creation engine, and it will again be able to play that role in our economy. We just need to make sure that these companies can get through the recession. It is our hope that the changes in our programs will be the inducement to the banks to provide them financing so that they can get through the recession and again be that engine [for] economic growth and job creation.
We are just starting to hear that some small manufacturers are starting to get inquiries about new orders. They tell us this is the first time in about six months that that has happened.
TBJ: Has the SBA guarantee been increased in some loans through this new legislation?
GG: Yes, as I have stated, we now have a 90% guarantee instead of our typical 75% guarantee and we will be offering a 100% guarantee on the ARC loans.
TBJ: Has this legislation enabled the SBA to expand its Microloan Program?
GG: There is funding for the Microloan Program, and that additional funding was placed into the system immediately. SBA Microloans are done through intermediaries that leverage our funding with community funds so that there is a bigger bang for the buck. SBA microloan intermediaries can make loans up to $35,000.
Typically microloans are made available to borrowers that do not meet our normal bank credit standards. To help this type of borrower, the Microlender supports the small business with technical assistance. That way the success rate for these borrowers is increased.
The Act provides $30 million to expand the Microloan Program. It also provides $24 million in technical assistance grants, so the Microlenders can provide that handholding (technical assistance) that’s essential for the smaller borrowers.
TBJ: Are there any other issues you would like to address?
GG: I think it’s very significant that the President recently announced some of these changes at a press conference; because it’s the first time I can recall a president announcing SBA programs and changes in a press conference.
The President announced the increase in the 90% guarantee and the waiving of all SBA fees for transactions greater than a year. I think it’s very significant that the President announced it, because it shows us that small business and the SBA are on his radar screen and are a critical part of the recovery program.