A Plan for Fixing the SBA Loan Programs

December 02nd, 2008 | 03:24 pm

The Bailout has been passed and more funds are being requested now for the automotive industry.

But what about small to mid-sized businesses?

Here's a suggestion from Chris Hurn, CEO of Mercantile Commercial Capital.

Revamp the SBA's outreach efforts from top to bottom – The SBA should be headed by an administrator who has real small-business experience, and under the direction of this new leadership it should revamp its outreach efforts to focus more on existing small companies that have established a proven track-record and need financing to enable them to reach their ultimate potential.

With the financial climate as it is, the SBA recently made changes to its lending rules, as reported in the NJ Biz Blog :

"Small businesses could find it easier to get government-backed loans following a decision by the Small Business Administration to let banks use either of two widely-used interest rate benchmarks — LIBOR and prime — as the base rate for calculating the interest rate charged on its loan products.”

Larry Kneip, SBA director at Indus American Bank in Iselin, welcomed the SBA rule change. "I think SBA lenders will become more active, and it will help the economy tremendously."

The rule change, "should allow our banks to be more willing to lend to small business," Kocsi said. At today's rates, a bank can charge up to 6.75 percent on an SBA loan tied to prime, but up to 8.33 percent for the same loan tied to LIBOR, Kocsi said. The bank starts with LIBOR, which today stands at about 2.58 percent, then adds 3 percent to get a base rate of 5.58 percent, then adds 2.75 percent for a maximum rate of 8.33 percent.

Bob Judge, a partner in the Cleveland-based consulting firm Government Loan Solutions Inc., said the SBA rule change "is a very positive development. The investors who buy the SBA pools fund themselves using LIBOR, and they want to buy loans and securities that are also based off LIBOR so they can match up the same indices for their assets and their liabilities."

There are better ways to utilize the funds that are being made available.

SBA Loans: Taking Advantage Of The Current Economic Environment

Click here to view the full article

Mercantile Commercial Capital is still liquid even in these trying economic times, give us a call if you are in the market and looking for an SBA 504 loan .