The Evergreen Edge Newsletter

Small businesses could be the beneficiaries of the proposal announcement by President Obama in Hyattsville, Maryland. A proposal made by NADCO, the trade association for the nation's Certified Development Companies (CDCs), to increase the lending limits for loans provided through the Small Business Administration's 504 loan program, was embraced by the Obama administration and included among the changes suggested by President Obama.

Obama, speaking at the offices of Metropolitan Archives, an SBA 504 loan recipient, announced that government-guaranteed loans made to America's small businesses through the SBA 504 loan program should be made available for up to $5 million in financing - up from $1.5 million. The loan limit was also recommended to increase from $4 million to $5.5 million for small manufacturing businesses. Congressional legislation is still pending approval.

Metropolitan Archives received an SBA 504 loan earlier this year to purchase a building at the maximum loan amount allowed. The company recently returned to Chesapeake Business Finance Corp., the CDC that provided their first 504 loan, and requested an additional loan for continued expansion. Today's announcement means they could be eligible to apply for a second loan to continue growing and increasing employment in their community. John Sower, President of Chesapeake Business Finance Corp., who was present at today's event said, "This change means we could be able to work with Metropolitan Archives again to keep a successful small business growing and create more jobs."

NADCO testified before both the Senate and House Small Business Committees several times this year requesting an increase in lending limits for the 504 loan program. CDCs across the country have been hearing from small business owners looking for financing who were unable to obtain an SBA 504 loan due to the cap of $1.5 million on their businesses. In many cases, these small businesses had already used an SBA 504 loan, they were ready to expand, but were denied the chance to borrow again through the SBA due to the $1.5 million limit.

Jean Wojtowicz, chair of the NADCO Board, says "Raising the ceiling on SBA 504 loans to $5 million is a big step toward bringing more job creation money to Main Street. Small businesses provide face-to-face services, they are idea factories and they create jobs. SBA loans are investments in their future and in America's future, and they come at zero cost to taxpayers."

SBA 504 loans provide long-term, fixed rate financing for commercial real estate and capital assets at interest rates normally below those available from banks. The SBA's lending partners, CDCs, work with small business borrowers to obtain 504 loans for up to 40% of project, a financial institution provides a first mortgage for 50% of the project and the borrower typically contributes as little as 10% down payment.

Chris Crawford, NADCO President, who was also present at the event, noted that "this increase in the loan cap for our borrowers would allow many more successful small businesses to continue to expand and add jobs in their communities. There is no better way to improve our national economy than to support the expansion of our country's successful small businesses." He went on to say, "We applaud the administration for their continued efforts to increase small business access to capital."

The SBA 504 loan program has funded nearly $40 billion in loans to growing small businesses over the past 23 years.

President Barack Obama has a proposal to raise the maximum loan size for SBA-backed loans to small business. SBA Administrator Karen Mills made this statement:

"America's 29 million small businesses have been hard hit in this recession.  Nine months ago, President Obama sent small businesses a life line: the American Recovery and Reinvestment Act.  Since then, the SBA has supported more than 33,000 loans for a total of almost $13 billion in small business lending.  This has helped save or create tens of thousands of jobs."

"But there is much more work to be done, which is why President Obama today pledged his support for legislation that would increase the maximum size of some SBA loans.  Increasing maximum loan sizes will allow the SBA to ensure that more small business owners and entrepreneurs can get access to the credit they need to expand their operations and create jobs."

"The President also announced additional support from the Treasury Department for smaller community lenders that are committed to increasing their lending to small businesses. Secretary Geithner and I will host a conference on small business lending with Members of Congress, regulators, lenders and the small business community.  The conference will discuss additional efforts that can be taken to provide small businesses with access to credit.  These steps, coupled with SBA's ongoing efforts, will help small businesses grow and create jobs throughout America."

Specifically, President Obama called for:

• Increasing the size of SBA's 7(a) loan from $2 million to $5 million.
• Increasing the size of SBA's 504 loan from $2 million to $5 million for standard borrowers (supporting a total project of $12.5 million) and from $4 million to $5.5 million for manufacturers (supporting a total project of $13.75 million).
• Increasing the size of SBA's Microloan from $35,000 to $50,000.

A copy of the President's remarks can be found here.

A fact sheet on the proposal can be found here.

The U.S. Senate Committee on Small Business and Entrepreneurship held a roundtable entitled the "Reauthorization of SBA Finance Programs and the Impact of the Small Business Provisions in the Recovery Act" on October 1, 2009. The roundtable gave participants the chance to provide feedback on past bills and proposals, present new proposals and provide feedback on the effectiveness of the small business provisions in the Recovery Act.

Representatives from both of the SBA‟s government guaranteed loan programs – Certified Development Companies for the SBA 504 program and commercial lenders for the 7(a) loan program – participated in the roundtable. NADCO, the trade association for the nation's CDCs prepared a written statement for the Committee with NADCO Chair, Jean Wojtowicz from Indiana Statewide CDC in Indianapolis, and Andre Fruge from Louisiana Capital CDC in Lafayette, LA participating on behalf of the CDC industry and NADCO.

Other participants included Tony Wilkinson, President/CEO of NAGGL, Greg Clarkson, Executive Vice President of BBVA Compass Bank, Fred Crispen, Executive Vice President of Borrego Springs Bank and Eric Zarnikow, Associate Administrator for Capital Access at the SBA.

Jean Wojtowicz stated that the primary legislative goals of NADCO and the CDC industry are to assist many more small businesses by expanding the 504 program while reducing the regulatory burdens that hamper their access to capital. To this end, NADCO proposed expanding the existing maximum amount for a standard 504 loan from $1.5 million to $5 million. Andre Fruge cited a number of successful businesses in Louisiana that already had 504 loans and wanted to obtain additional 504 financing for further expansion. Louisiana Capital CDC was unable to assist them due to the cap of $1.5 million on 504 loans and, consequently, new jobs were lost for these Louisiana communities.

NADCO also recommended making lending to small businesses in low income areas a public policy goal, updating SBA rural area definitions to provide more loans to rural America, and authorizing the use of 504 loans for business acquisition through stock purchases.

NADCO pushed for supplemental funding to extend the 504 fee reductions provided by the Stimulus Act to keep the economic recovery going in the small business sector. Additionally, it was noted that SBA needs to implement the 504 first mortgage secondary market guarantee program required by the Stimulus Act to enable more community banks to utilize the 504 loan program.

Also, to provide much needed working and long-term capital to small businesses, NADCO proposed enabling 504 loans to be used to refinance qualified small business real estate debt, allowing "cash out" refinancing of existing real estate equity for working capital and also allowing small businesses to maximize loans from both the 504 and 7(a) loan programs.

NADCO once again reiterated that 504 loan recovery and liquidation efforts could be improved by funding existing SBA liquidation regulations to enable the CDC industry to increase focus and staffing for recovery of defaulted loan collateral.

In conclusion, Wojtowicz indicated that NADCO has not proposed a radical change in direction for the SBA 504 program, but rather „an incremental update and upgrade for a very successful capital access program that for over ten years has cost the American taxpayer nothing." She went on to say, " the pipeline" of 504 loan projects is beginning to return and that with rapid implementation of requested changes by the SBA, the 504 loan program will be just the right program at a critical time for small businesses."