President Obama to Announce Aid for Small Companies

Written by Wade Henderson

Saturday, 06 February 2010 09:38

by WadeHenderson

The world has been experiencing a failing economy now for a couple of years and regardless if you are in manufacturing, service, distribution or anything else that relies on one of these industries to survive, you have been affected by the cost cuts and staff reductions.

As in the NY Times on March 15, 2009 ''It's a huge step in the right direction,'' Giovanni Coratolo, director of Small Business Policy at the U.S. Chamber of Commerce, said Saturday. ''In this economy, having the least amount of risk for banks will incentivize banks to lend to small businesses. A lot of small businesses will benefit from this.'' [http://www.nytimes.com/aponline/2009/03/15/washington/AP-Obama-Small-Businesses.html?hp]

So what is this going to mean? The SBA guarantees loans up to $20 billion a year in the US economy and yet is projected to approve less than $10 billion in 2009. What does this mean? It means that companies that want to get a SBA loan are not getting approved. The affect of additional funding to the SBA is not really going to do anything if we are currently using less than 50% of the available funding. How will this assist the economy?

The new administration is planning on buying up the slack? By Temporarily eliminating some upfront fees on some of the SBA loans and increasing the guarantee caps to the lenders for these Business Loans. Basically they are looking to off set some of the administrative costs and reduce the risk for the lenders of the SBA loans.

So is this a token gesture or an actual plan of action? The coming months will determine that but lets just take a look at the plan from a lender perspective and how it will effect the companies that are applying for these SBA Loans.

If the loans that are out there now are defaulting at say 20% (which is conservative) and the expected default rate is on any given Business Loan traditional lenders will accept is 5% based on their portfolio. The new plan from Obama gives a 5% additional guarantee on the defaults. So when you take a 20% actual default rate, a planned default rate of 5% and a 5% reduction in that risk, what do you get? Yes, that is right10% over the acceptable allotment. Now what happens? The restrictions will not change much if any because we are still over the 5% default rate.

There is the bad news, but there is significant good news here too. Now, finally, there is something being done to try to help the small companies, not just the major corporations. We will need more than this to get the economy moving but this is in the right direction.

There are so many alternatives to SBA or bank loans today that are offered by Commercial Finance Brokers as they access to funds for Accounts Receivable Financing, Export Factoring, Purchase Order Finance, Commercial Equipment Loans and Commercial Real Estate Mortgages. Be sure to do you checking around into the various options available to you as there is a loan available for most circumstances if you have the right Finance Broker.

About the Author:

Wade Henderson is a recognized Expert in the Business Finance World with over 13 years Experience in the Commercial Lending Field and a strong reputation for getting the deal done. Visit his Business Finance Website to put his experience to work for you.

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