With financial institutions tightening lending standards in this recent economic crisis, the small businesses that depend on them for credit have been hit particularly hard.
Ya think? Without the ability to sell stock or bonds to raise capital, small businesses have to turn to banks. Banks are required to meet tough new standards and for the most part, keep the loans they write on their balance sheets. To maintain their required ratios, most banks have withdrawn credit from those least able to survive it, small business. A perfect storm.
While the bulk of the report suggests rules changes and incentives that do nothing to deal with the underlying problem that there is no secondary market for banks to sell notes in, not to mention tightened reserve and capital requirements, there are a number of interesting proposals that could actually bring some relief. Among them:
- Eliminating Personal Resources and Credit Elsewhere Tests from 504 Program
- Re‐Examining the Use of Credit Scores
- Allowing SBA Lending Against Business Contracts
- Creating a New Intermediary Lending Program
- Providing Direct Loans Through SBA’s Disaster Program
- Using EESA Funds to Create a Facility to Support Small Business Lending
- Creating a New Angel Capital Tax Credit Program
- Allowing Certified Development Companies (CDCs) and Community Development Financial Institutions to Access Both SBA and Treasury programs
- Reducing Regulatory Penalties When Collateral Value Has Fallen But Borrowers Are Current on Interest Payments
- Creating a “Character Loan” Basket With Special Regulatory Treatment
The report also includes opening remarks of Tim Geithner, Secretary of the Treasury, Karen Mills, SBA head along with other dignitaries. It also has an interesting slide show about the state of SBA lending.