Far from the debate over “too big to fail” plenty of small-business owners have grumbled that they must be “too small to matter.”
Every politician acknowledges how important the nation’s 29 million small businesses are to the economy. But their actions over the last year have been aimed at the big threats to the financial system.
Yesterday, President Obama announced new lending initiatives to help, he said, “the engine of job growth in America.” But before anyone grumbles over a new big-ticket bailout for Main Street, the first impression is what’s in the works is less than it might appear, and it’s not clear what this will cost.
First, the administration wants to increase the maximum size of Small Business Administration guaranteed loans, but it needs Congress to pass legislation to do so. The most popular loan, called the 7(a) loan, is used to buy machinery, equipment and buildings. Obama would like to see the limit rise from $2 million to $5 million.
Second, the Obama team wants to provide capital to small banks with less than $1 billion in assets, and community financial institutions. To get that capital, participating banks would have to submit quarterly small-business lending plans and pay a 3 percent annual dividend to the federal government.
Lynn Ozer, executive vice president at Susquehanna Bank, said increasing the cap on SBA loans would be “absolutely awesome” because it can cost much more than $2 million to buy a commercial building.
Susquehanna is an active SBA lender, having done 42 loans through the Philadelphia District Office alone valued at a total of $19.9 million in the federal fiscal year ended Sept. 30.
But she said raising the loan limit won’t mean much if the administration doesn’t also increase the guaranteed portion, which has been 75 percent, or a maximum of $1.5 million. If only $1.5 million of a $5 million loan is guaranteed and able to be sold in the secondary market, that won’t be a great incentive to lenders, Ozer said.
Ozer, who serves on the board of the National Association of Government Guaranteed Lenders, said what would help is to maintain the measures contained in the American Recovery & Reinvestment Act, including an increase in the guaranteed portion to 90 percent of a loan and the elimination of borrower fees.
With $375 million in new funding, the SBA said it was able to support more than $11.3 billion in lending through more than 30,000 SBA-backed loans since February.
Still there’s one thing that’s missing in these policy-driven fixes: Desire. There’s a lack of desire by businesses to borrow and a lack of desire by financial institutions to lend because the economy is still a hazy, scary question mark.
The “Beige Book” regional economic conditions released by the Federal Reserve yesterday noted that business lending has declined in the Philadelphia region. The National Federation of Independent Business says its members have postponed building inventories and gutted their capital spending plans. In its most recent survey, only 4 percent of owners reported “finance” as their No. 1 problem.
Tinker as policymakers may with loan programs, what will really help small business is a robust economic recovery.
Does anyone see it out there?