Obama’s new initiatives from SBA, our bailout plan!!! It does not look very bright.

Don’t get too excited!  While there are some benefits for new borrowing, those who were struck down from this economic meltdown will receive a few crumbs to nibble on, but nothing more.  Once again, those in trouble must rely on their own wits to overcome the obstacles and resolve their issues in order to survive this downturn.

Let’s at least review the good news:  Obama has declared that the SBA will guaranty 90% of a guaranteed loan.  That’s HUGE for new borrowers as a bank would be crazy not to sign up for this deal, with no real down side.  A 90% SBA guaranty makes lending to high risk small business owners almost risk proof.  This should open the floodgates of lending to small business owners; but will it? we shall see.

In a second move that is appreciated but of questionable impact, Obama has reduced the fees for the SBA guaranty to approximately 3.8% of the face amount of the loan…A nice gesture and appreciated but unlikely to change anything substantially, although it does save us a few dollars.

Unfortunately in a recently released memo, the negative side of the SBA’s changes in policy is as reported here:

On Feb. 6, the SBA advised lenders that, in cases of business acquisitions, no more than 50 percent of a 7(a) loan should be used to finance goodwill – the intangible assets of a business that create cash flow.  Hard assets, such as real estate or equipment, are not included in goodwill. In no case should goodwill account for more than $250,000 of the loan amount, according to the SBA’s guidance.

Lenders and business brokers contend this goodwill limit will make it impossible to use SBA loans for many business acquisitions, particularly those of service businesses or professional practices.  As a result, it will be harder to buy or sell a business, said Matt Ottaway, general manager for Sunbelt Business Brokers, which has 200 offices across the U.S.  This could lead to a decline in the value “of every small business that’s out there,” he said.

Many successful businesses have few hard assets, “Why do you want to punish companies that are highly profitable?” Gabehart said. “That’s basically what this boils down to.”

The SBA has received considerable feedback, both pro and con, on its new goodwill limit and will issue further guidance soon.

The agency had not previously addressed goodwill in its guidance to SBA lenders, and it felt it needed to do so in order to encourage prudent lending.  It also wants to encourage sellers to finance the purchase of their businesses because that gives them a stake in the new owners’ success.

The third area in which Obama has provided small business with some ‘bailout’ benefits is in the tax code.  There are a number of valuable tax breaks available -and in fact designed for small business owners- which are valuable and may be helpful -assuming you stay in business long enough to experience these benefits.  To this I say ‘nice, good ideas, might be helpful’, but here is  my question and concern:

What about the hundreds of thousands of small business owners being crushed by debt previously agreed to and now, with massively declining revenues, are unable to afford repayment?

If small business owners had some sort of bailout program perhaps we could turn this down economy around with added payroll and productivity.  We needed a debt relief plan NOT just an opportunity to create MORE debt.

I agree that making credit more available is critical for many businesses, and a good idea.  It is certainly crucial to new business start-ups and this will serve many well.  But what about the bed rock of our communities, the small businesses that are already in debt and are trying to survive with a decline of 30-80% of their revenues, how does this get resolved with the offering of additional debt guaranties which will only stimulate lending for new borrowers?

Unfortunately we remain with only a few answers to this dilemma.  The first and best are debt workouts.  Stripping off the debt and protecting the assets.  Reducing the resulting ‘called  personal guaranties’ to affordable losses not bone crushing family destroying disasters.  That is what I can offer you, blue sky at the end of a horrendous storm.  A life line in the dark.  A way to survive so you may play again… a pre-emptive debt workout.

That’s it, that’s all there is on the short list of how to survive the downturn and remain in your home, without losing everything you’ve worked hared for and being put out on the street with your family… wondering how to get out of this nightmare.

Call me, lets talk, it will cost you nothing to explore the options I can make available to you.  There may not be any further acts of support or assistance coming from our government … if there is nothing more on the horizon I may in fact be all you have.

Call my office at 413-584-2581 Norm will arrange a tele-conference for us to discuss your issues and together design your survival plan.