Small Business

Why the SBA's New Loan Program Stinks


It's tough to qualify for this $35,000 offer unless you're in immediate danger. Better to bite the bullet than take a stopgap handout

Historically, June 15 is a big, big day. Don't believe me? Well, Arkansas became the 25th state on June 15, 1836. Now that's big. And on June 15, 1849, James Polk died. Huge. Want something bigger? O.K. Hee-Haw premiered on June 15, 1969. And this June 15, Ice Cube turned 40!

Oh, and banks around the country began taking applications for the Small Business Administration's new American Recovery Capital program. Sure, we've been screaming for a little of that recovery money, too. But I'm not certain this is what most of us had in mind. The ARC loans are deferred-payment vehicles, where a qualifying small business can get up to $35,000 of federally guaranteed money from specific banks with no lender fees or interest. Payback has to be made over a five-year period.

The key word above is "qualifying." As a bald, suburban, white business owner who drives a Honda Odyssey, I'm more likely to show up in the front row of an Ice Cube concert than get approved for one of these loans.

Only for Emergencies

Don't believe me? Take a look at my business. My revenues are down from last year. My profits are down. I'm hustling my butt off to keep the work coming in. I've even had to cut back on my trips to Argentina to meet my mistress. Yet even with these hardships, my company still wouldn't qualify for these new ARC loans. To qualify I have to show evidence of immediate hardship, like a significant drop in sales, trouble meeting payroll, or a credit line cutoff. We're not really in that situation, thank God. Sure, my daughter could use braces, and we've had to hold up on those asthma treatments for my son. But we're good. Really.

Even if my business were to qualify for an ARC loan, I'm not sure this is the kind of thing I'd be doing. With the exception of my competitors, I certainly sympathize with the plight of other small business owners who are getting creamed by the recession. But will the $35,000 really solve their problems? I always thought that smart business owners who sought financing did it not to survive but to actually make money. Getting a handout loan from the government goes against my nature. Especially if it's just so I can keep my fingers crossed and hope that things turn around. That doesn't seem like a great rationale for digging myself deeper into debt. Unless I really see a tangible turnaround on the horizon, I'd rather do what most American business owners do during recessions: They circle the wagons, cut costs, hustle like hell, listen to some good rap music, and ride things through without any handouts from the government.

Applying for these loans isn't exactly going to make me a favored client of the local bank either. To me, it seems as if the banking industry is hating this program. Please know that I'm no fan of bankers, unless they're offering me free baseball tickets. But I can understand their lack of enthusiasm here. After suffering through this last financial meltdown, few are eager to soil their balance sheets again by going into business with distressed companies, even if the government is behind them. The SBA is offering lower interest rates to them than other loan programs. Banks will have to absorb the administration costs and will be forced to liquidate on their own.

I've been reading that some banks are making these loans available only to their established customers. Others are running away from the program altogether. Bankers are business owners too—they want to build their companies with strong, profitable customers. These are not the kind of people that would be applying for an ARC loan. Ice Cube in 1979 need not apply. But Mr.-40-year-old-Cube is certainly welcome. I know, sounds cruel, doesn't it? Well, they are bankers, for goodness sake. No one said they had souls.

Drop in the Bucket

Something tells me that the SBA already knows this. They're estimating about 10,000 businesses will take advantage of this program. Maybe so. But last I checked there are about 25 million small businesses in this country. Helping out 0.04% doesn't seem like a real contribution to the small business community, does it?

What about the rest of us? There are millions of small business owners who love Ice Cube and who have survived this recession. We're looking to grow and hire more people. And we'd also like some help from the government. By nature we're not looking for handouts or survival loans. We need help reducing our biggest expense: Keeping our bitches happy. Ha ha. Just a little reference to Ice Cube song lyrics. Seriously, I mean keeping our taxes low. Even a small income tax cut, rather than the inevitable increases we see on the horizon to fund our ballooning national debt, would give us more capital to operate better.

But that's probably not going to happen. So instead we have ARC loans.

Some business owners will need these loans—to them I say: Go for it. If you think a $35,000 loan will provide you with enough breathing room to ride out the storm and survive, then more power to you. But if you're just prolonging the agony, or don't believe in the numbers you're providing to the bank showing how you're going to pay things back, then you might want to avoid digging yourself into a bigger hole.

For the rest of us, we'll stay away from bailouts for now, thank you very much. We'll stay close to our bankers. We'll apply for loans that they'll like. Loans for equipment or new business ventures or acquisitions with real return on investment. Loans that will finance our growth and provide profits to the bank, too. This is so we can hold our heads up high and partner with them again in the future. That's the kind of financing we'll be interested in.

That way we'll still be around when Ice Cube celebrates his 60th.

Gene Marks, CPA, is the owner of the Marks Group, which sells customer relationship, service, and financial management tools to small and midsize businesses. Marks is the author of four best-selling small business books and writes the popular "Penny Pincher's Almanac" syndicated column. He frequently speaks to business groups on penny-pinching topics. More penny-pinching advice from Marks can be found at www.quickerbetterwiser.com.

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