Small-Business Expansion Creates Jobs
Direct Loans from SBA is the Stimulus
Just like President Barack Obama's White House chat with Harvard professor Henry Louis Gates and police Sgt. James Crowley, small-business owners want a place at the table as well. And subject to the weather, of course, imbibing cold beers in Rose Garden will be very nice, thank you.
Moreover Mr. Obama, please invite Karen Mills, administrator of the U.S. Small Business Administration to join us. We want to speak with her about stimulating our small businesses, encouraging the formation of new ones and creating more jobs.
If I am invited, please make my libation Turbodog, a tangy dark-beer by Louisiana-based Abita Brewing Co. In addition to it being an American brand, Turbodog creates a pleasant stimulant-sensation at the back of my throat that metaphorically represents the stimulus needed by the small-business community.
For starters, I want to remind Ms. Mills that SBA made direct business loans to veterans and other targeted groups during the 1970s. The direct-loan program asked for "turndown" letters from two banks, lots of unnecessary documentation and bureaucratic delays were commonplace. Even so, SBA made loans that were too marginal for banks to approve. We can minimize the delays by learning from the techniques used by the agency's "preferred" lenders to expedite approvals without jeopardizing the underwriting quality.
During this current credit crunch, we temporarily need a dual system of direct loans alongside the bank-funded programs. That is because banks are only approving top tier, conventional-quality borrowers that are well collateralized and demonstrate a history of brisk cash flow. By contrast, SBA's direct-loan program would be for borrowers with good credit that do not meet the banks' collateral requirements or fall a bit short of the cash-flow benchmarks.
Understandably you will have to beef-up your underwriting staff to handle the processing of direct loans. It should be easy to find experienced employees since many banks have closed or reduced the size of their small-business lending departments. These skilled men and women are eager to get back to work.
Loan fees and interest rates charged to borrowers for direct loans should be similar to what the private sector gets for SBA-guaranteed loans. In that way the direct loan program will pay for itself and not place an undo burden on taxpayers. Furthermore, it would not unfairly compete with the private sector.
Meanwhile, the Community Express pilot program is a winner and should be made permanent. It provides up to $50,000 for startup and existing businesses in need of a quick working capital injection. The lenders that participate in the program use a cookie-cutter model based on credit scoring. Even though defaults are somewhat higher than fully underwritten loans, the total dollar amount is small enough so as not to jeopardize the overall 7(a) program. Our national landscape is dotted with successful small businesses that were launched by the Community Express program and it should be expanded.
Back at the Rose Garden, the President and SBA Administrator are listening politely and working relationships are being forged with the small-business community. The opportunity for small-business owners to knock back a beer or two with the decision-makers at the White House is a meaningful way for them to be heard.
Jerry Chautin is a volunteer SCORE business counselor, business columnist and SBA's 2006 national "Journalist of the Year" award winner, tenonline.org/sref/jc1bio.html. He is a former entrepreneur, commercial mortgage banker and business lender.
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