Guest columnist
Times are tough, and the political situation in Washington is still uncertain on many fronts related to small business. However, the Obama administration recently unveiled its new push to help small business throughout the country.
The main issue, according to the president, is that "[t]here is still too little credit flowing to our small businesses. There are still too many entrepreneurs who can't get the loans they need to open their doors and start hiring."
Why all the consternation about small businesses? Here are a couple facts to keep in mind from the U.S. Dept. of Commerce: Small firms (500 or fewer employees) represent 99.7 percent of all employer firms. They employ just over half of all private-sector employees, pay 44 percent of total U.S. private payroll, have generated 64 percent of net new jobs over the past 15 years, created more than half of the nonfarm GDP, hire 40 percent of high-tech workers (such as scientists, engineers, and computer programmers), are 52 percent home-based and 2 percent franchises. They made up 97.3 percent of all identified exporters and produced 30.2 percent of the known export value in fiscal year 2007, and produce 13 times more patents per employee than large patenting firms -- and these patents are twice as likely as large patents to be among the 1 percent most cited.
The proposal unveiled by the president calls for Congress to pass legislation authorizing some changes to the way the Small Business Administration does business. The detailed plan calls for boosting the maximum size of certain SBA loans and calls for new steps to provide lower-cost capital to community banks.
Under the plan the size of the maximum SBA 7(a) loan would rise from $2 million to $5 million. The 7(a) loan provides governmental partial guarantees on loans for small businesses borrowing to invest in working capital, machinery and equipment, and real property. The guarantee means that the government would pay a certain percentage of the loan to the bank or any holder of the note if the borrower defaults. So essentially it is a loan that Uncle Sam stands behind to decrease the fear of banks to fork over the money for essentially unsecured promissory notes.
The plan also increases the maximum size of the SBA's 504 loan program to $5.5 million. The 504 loans are used to provide guarantees on notes for the purchase real property and expensive fixed machinery for business expansion and job creation. Also under the plan, the SBA microloan, a popular loan program, would receive an increase in maximum from $35,000 to $50,000.
To help unfreeze the money spigot, community banks with less than $1 billion in assets, could receive new capital from the government to loan out at an initial dividend rate of 3 percent down from the current 5 percent. The rate would increase to 9 percent after five years to create an incentive to pay faster.
Here in North Carolina, SBA loans have been a major source of capital for small businesses. According to the Triangle Business Journal, 918 SBA loans valued at $263 million were made from October 2008 through September 2009 throughout the state. However, dollar-wise that was down by 24 percent from the previous federal fiscal year. In Wake, Durham and Orange counties the decrease was only 10.3 percent over the previous year, 297 loans last year vs. 183 this year, amount from $65 million last year to $58 this year.
This area of small-business startup and expansion is essential to our area for the growth economic development. The decisions made by the federal government will have a large impact on the number of startups that will begin operations here in Orange County. In addition, existing businesses here need generous access to capital to expand by purchasing land or constructing buildings. Hopefully, Congress can act fast on the President's proposals and the administration can implement the changes quickly. If they do then maybe we can all look forward to more businesses starting in Orange County and less taxes on residential home owners sooner than later.
Jeremy Todd Browner, www.brownerlaw.com, is an attorney in solo practice in Chapel Hill.
