Small Business Loan Update – Stimulus Bill Helps Bailout Businesses If They Cannot Pay Loans

As we continue to sift dutifully through the over 1,000 pages of the stimulus bill (American Recovery and Reinvestment Act of 2009), there is one provision that is not getting much attention, but could be very helpful to small businesses. If you are a small business and have received an SBA loan from your local banker, but are having trouble making payments, you can get a “stabilization loan”. That’s right; finally some bailout money goes into the hands of the small business owner, instead of going down the proverbial deep hole of the stock market or large banks. But don’t get too excited. It is limited to very specific instances and is not available for vast majority of business owners.

There are some news articles that boldly claim the SBA will now provide relief if you have an existing business loan and are having trouble making the payments. This is not a true statement and needs to be clarified. As seen in more detail in this article, this is wrong because it applies to troubled loans made in the future, not existing ones.

Here is how it works. Assume you were one of the lucky few that find a bank to make a SBA loan. You proceed on your merry way but run into tough economic times and find it hard to repay. Remember these are not conventional loans but loans from an SBA licensed lender that are guaranteed for default by the U.S. government through the SBA (depending upon the loan, between 50% and 90%). Under the new stimulus bill, the SBA might come to your rescue. You will be able to get a new loan which will pay-off the existing balance on extremely favorable terms, buying more time to revitalize your business and get back in the saddle. Sound too good to be true? Well, you be the judge. Here are some of the features:

1. Does not apply to SBA loans taken out before the stimulus bill. As to non-SBA loans, they can be before or after the bill’s enactment.

2. Does it apply to SBA guaranteed loans or non-SBA conventional loans as well? We don’t know for sure. This statute simply says it applies to a “small business concern that meets the eligibility standards and section 7(a) of the Small Business Act” (Section 506 (c) of the new Act). That contains pages and pages of requirements which could apply to both types of loans. Based on some of the preliminary reports from the SBA, it appears it applies to both SBA and non-SBA loans.

3. These monies are subject to availability in the funding of Congress. Some think the way we are going with our Federal bailout, we are going be out of money before the economy we are trying to save.

4. You don’t get these monies unless you are a viable business. Boy, you can drive a truck through that phrase. Our friends at the SBA will determine if you are “viable” (imagine how inferior you will be when you have to tell your friends your business was determined by the Federal government to be “non-viable” and on life support).

5. You have to be suffering “immediate financial hardship”. So much for holding out making payments because you’d rather use the money for other expansion needs. How many months you have to be delinquent, or how close your foot is to the banana peel of complete business failure, is anyone’s guess.

6. It is not certain, and commentators disagree, as to whether the Federal government through the SBA will make the loan from taxpayers’ dollars or by private SBA licensed banks. In my opinion it is the latter. It carries a 100% SBA guarantee and I would make no sense if the government itself was making the loan.

7. The loan cannot exceed $35,000. Presumably the new loan will be “taking out” or refinancing the entire balance on the old one. So if you had a $100,000 loan that you have been paying on time for several years but now have a balance of $35,000 and are in trouble, boy do we have a program for you. Or you might have a smaller $15,000 loan and after a short time need help. The law does not say you have to wait any particular period of time so I guess you could be in default after the first couple of months.

8. You can use it to make up no more than six months of monthly delinquencies.

9. The loan will be for a maximum term of five years.

10. The borrower will pay absolutely no interest for the duration of the loan. Interest can be charged, but it will be subsidized by the Federal government.

11. Here’s the great part. If you get one of these loans, you don’t have to make any payments for the first year.

12. There are absolutely no upfront fees allowed. Getting such a loan is 100% free (of course you have to pay principal and interest after the one year moratorium).

13. The SBA will decide whether or not collateral is required. In other words, if you have to put liens on your property or residence. My guess is they will lax as to this requirement.

14. You can get these loans until September 30, 2010.

15. Because this is emergency legislation, within 15 days after signing the bill, the SBA has to come up with regulations.

Here is a summary of the actual legislative language if you are having trouble getting to sleep:

SEC. 506. BUSINESS STABILIZATION PROGRAM. (a) IN GENERAL- Subject to the availability of appropriations, the Administrator of the Small Business Administration shall carry out a program to provide loans on a deferred basis to viable (as such term is determined pursuant to regulation by the Administrator of the Small Business Administration) small business concerns that have a qualifying small business loan and are experiencing immediate financial hardship.

(b) ELIGIBLE BORROWER- A small business concern as defined under section 3 of the Small Business Act (15 U.S.C. 632).

(c) QUALIFYING SMALL BUSINESS LOAN- A loan made to a small business concern that meets the eligibility standards in section 7(a) of the Small Business Act (15 U.S.C. 636(a)) but shall not include loans guarantees (or loan guarantee commitments made) by the Administrator prior to the date of enactment of this Act.

(d) LOAN SIZE- Loans guaranteed under this section may not exceed $35,000.

(e) PURPOSE- Loans guaranteed under this program shall be used to make periodic payment of principal and interest, either in full or in part, on an existing qualifying small business loan for a period of time not to exceed 6 months.

(f) LOAN TERMS- Loans made under this section shall:

(1) carry a 100 percent guaranty; and

(2) have interest fully subsidized for the period of repayment.

(g) REPAYMENT- Repayment for loans made under this section shall–

(1) be amortized over a period of time not to exceed 5 years; and

(2) not begin until 12 months after the final disbursement of funds is made.

(h) COLLATERAL- The Administrator of the Small Business Administration may accept any available collateral, including subordinated liens, to secure loans made under this section.

(i) FEES- The Administrator of the Small Business Administration is prohibited from charging any processing fees, origination fees, application fees, points, brokerage fees, bonus points, prepayment penalties, and other fees that could be charged to a loan applicant for loans under this section.

(j) SUNSET- The Administrator of the Small Business Administration shall not issue loan guarantees under this section after September 30, 2010.

(k) EMERGENCY RULEMAKING AUTHORITY- The Administrator of the Small Business Administration shall issue regulations under this section within 15 days after the date of enactment of this section. The notice requirements of section 553(b) of title 5, United States Code shall not apply to the promulgation of such regulations.

The real question is whether a private bank will loan under this program. Unfortunately, few will do so because the statute very clearly states that no fees whatsoever can be charged, and how can a bank make any money if they loan under those circumstances. Sure, they might make money in the secondary market, but that is dried up, so they basically are asked to make a loan out of the goodness of their heart. On a other hand, it carries a first ever 100% government guarantee so the bank’s know they will be receiving interest and will have no possibility of losing a single dime. Maybe this will work after all.

But there is something else that would be of interest to a bank. In a way, this is a form of Federal bailout going directly to small community banks. They have on their books loans that are in default and they could easily jump at the chance of being able to bail them out with this program. Especially if they had not been the recipients of the first TARP monies. Contrary to public sentiment, most of them did not receive any money. But again, this might not apply to that community bank. Since they typically package and sell their loans within three to six months, it probably wouldn’t even be in default at that point. It would be in the hands of the secondary market investor.

So is this good or bad for small businesses? Frankly, it’s good to see that some bailout money is working its way toward small businesses, but most of them would rather have a loan in the first place, as opposed help when in default. Unfortunately, this will have a limited application.

Wouldn’t it be better if we simply expanded our small business programs so more businesses could get loans? How about the SBA creating a secondary market for small business loans? I have a novel idea: for the moment forget about defaults, and concentrate on making business loans available to start-ups or existing businesses wanting to expand.

How about having a program that can pay off high interest credit card balances? There is hardly a business out there that has not been financing themselves lately through credit cards, simply because banks are not making loans. It is not unusual for people to have $50,000 plus on their credit cards, just to stay afloat. Talk about saving high interest. You can imagine how much cash flow this would give a small business.

We should applaud Congress for doing their best under short notice to come up with this plan. Sure this is a form of welcome bailout for small businesses, but I believe it misses the mark as to the majority of the 27 million business owners that are simply looking for a loan they can repay, as opposed to a handout.

Can Your “Business Mentor” Train You to Make Money Online?

Are you looking for a good business mentor to help you build a solid income online? If you are not, you should be, it is suggested that successful Internet Marketers had prior training and mentoring before achieving their online success. But once you find a business mentor that meets your credentials how can you maximize their training to earn money online?

Even the top business mentors, and trainers need to have entrepreneurs, that are trainable. If you have been online for any length of time I am confident that you have heard this statement suggested before. And if someone was to ask you are you trainable, do you think anyone is really going to say no. The fact is even the most unqualified person is going to say they are trainable. In order to make sure that your business mentor will work for you there are key points that you have to diagnose about yourself first.

Can Your Business Mentor Really Help You?

Lets find out how trainable you really are. Whether you have a mentor now, or are looking for a business mentor in the future, discover if you have what it takes to make money, even if you have the best training platform available.

1.) Time Factor – Do you have time to be trained. We live in a busy society, and it may be difficult to sketch out time to get the right training and mentoring. It is suggested that you should be able to offer two hours a day when starting a business. If you can’t offer yourself that time frame then what are your expectations for the training?

2.) Keep Appointments – A good business mentor will book appointments in advance. Its suggested to be critical to have one on one time with your trainer. If at all possible be diligent and keep your appointments. If you don’t attend them, they can’t do their job.

3.) Re-invent The Wheel – If you know so much you do not need a business mentor. Follow the training precisely, they did not earn their leadership title from not testing different strategies. Take their advice, implement their strategies, and do not go off and try your own thing. Let them do their job.

4.) Follow Steps – Steps are set up for a reason. What may not make since to you on step one, may come together on step five. You are joining with them to learn, and be trained on the right way to build a business. It doesn’t happen overnight, it takes time to learn the ins and outs of building a successful Internet Business.

5.) Take Constructive Criticism – A business mentor is going to tell you if you did something right and will sing your praises with you. On the flip side if you do something wrong they are going to tell you that as well, and more then likely suggest a different strategy to dealing with your mistake. Mistakes are made every day, learn from those mistakes. Instead of getting angry at your trainer for telling you what you did wrong, learn from those mistakes and take their strategies to improving on them.

6.) Do Your Home Work – This isn’t school, however you should view it as an assignment. When a trainer suggest you do something it is in your best interest to do that step before you meet with them. They will appreciate your dedication, and you will appreciate what your learned.

7.) Follow Protocol – You want a relationship with your business mentor. You want to feel like you can call upon them for help. However, do not abuse their mentorship. What is the protocol for questions, what are their hours of operation. Most mentors won’t mind adjusting a schedule conflict to assist people, however if you call at midnight to ask a question, it may not be a good start to a solid business relationship.

8.) Job Description – What is your job? What is your business mentors job? Your job is to implement the strategies that you are taught. Your mentors job is to teach you those strategies. They are not secretaries, and they don’t do the work for you

9.)Time – Management – Business mentors will teach, guide and show you how to build a successful Internet Business. They are not your cheerleaders telling you to get to work, nor will they check up on you consistently. As a business owner its your responsibility to get the job done.

The Internet is a mass resource, and has offered people starting an Internet business a legitimate opportunity to make money. Regardless of what people may suggest, starting an Internet Business, is not automated or without responsibility. Finding a good business mentor is suggested to be critical in training you to have a successful business. However, even the best business mentor will need trainees who follow the above nine steps.

Do you think you can follow the nine steps above? If so, the next time your business mentor ask you if you are trainable, you can look at the eight steps outlined, and say with confidence, yes I am more then trainable.

When is the Right Time to Sell Your Business?

Those looking to sell a business often ask ask business brokers such as ours a simple question: “I don’t know if I want to sell my business; so when is the best time to sell?” The answer to that question can have a dramatic effect on what the value of the business for sale is. At Corporate Investment Business Brokers, we’ll provide you with a comprehensive business valuation to help determine the worth of your company and whether selling is the best option for you moving forward. As with all commodities, the value of a business fluctuates with events or circumstances that are often beyond the control of the owner. Recently, a local business owner had his business on the market for $750,000. There was great buyer interest but the seller decided not to sell but rather to wait a year or two until he felt hat he could get even more money for it.

Tragically, he became seriously ill and could no longer operate the business himself. He decided to turn the day-to-day operation of the business over to his long-time manager and friend to operate. But after a great start, his performance steadily declined and the business soon developed financial difficulties. Six months later it was sold for $195,000. There are several things to think about when determining the right or wrong time to sell a business. The following is a list of positive factors that may suggest the time is right to sell. How many of them apply to your business at this time?

o The financial picture of the business has improved over the last several years, showing increased gross sales and owner benefits each year. Potential buyers love to see a business that is increasing in sales and profits.

o Interest rates are relatively low. The monthly and yearly debt service on the business will be lower, thus making the bottom line of the business more attractive.

o The stock market and other vehicles to earn money on your cash are down. A volatile or declining stock market will cause investors to get nervous about placing all of their money in it. They will look for a better place to put their money for a higher rate of return and a business is a logical place to do so.

o A desirable location is always a plus. The tremendous growth that we have experienced in Southwest Florida over the past few years, along with a great climate and beautiful surroundings, attracts affluent new residents with a great deal of discretionary income.

All of these factors are a big plus for the business seller looking to gain top dollar for his/her business.