Small businesses that are experiencing credit crisis can now breathe easy as in a hearing the House Small Business Committee decided on expanding capital access to such companies.
The Small Business Administration was making slow-paced reforms even though the stimulus bill signed by President Obama had provisions to open up the constricted credit market for small businesses as SBA’s main loan guarantee plans have seen a huge fall due to the ongoing recession.
D-N.Y. committee chair Nydia Velazquez said that the SBA was able to fill in the gaps in the private capital markets during recessions in the past. However, its efforts seem futile this year. The SBA is doing less this time to help support the capital markets as the loans issued by the SBA have declined. This is due to the lack in funding for the past 8 years, management that is not capable of managing the SBA and bad policy decisions.
Nydia remarked that the SBA is inefficient as it hasn’t been able to deliver on more than half of the provisions made available by the “American Recovery and Reinvestment Act” that was passed by the Congress. However, she opines that as more of such initiatives are introduced, entrepreneurs would be able to see noticeable improvements.
The hearing committee listened to multiple representatives across the industries.
President and CEO, of MaxCyte Douglas Doerfler testified in front of the committee as to how his company and the industry have been performing. He added that almost 16% of 300 odd public biotechnology companies in the U.S. which were doing well in the Q1 08 have ended Q4 08 year end in restructuring, bankruptcy or frozen operations and almost 7% ending up as part of acquisitions.
National Association of Small Business Investment Companies, Chair Holly Huels, remarked on the Debenture program by SBIC by saying that she is finding it difficult to get funding from SBA despite paying back an excess on the cost on loans of $340 million. In a voting 100% of her groups’ members felt, they experienced a credit crunch on funding from the banks.
National Association of Development Companies, chair Jean Wojtowicz sounded off concerns about increasing price of the 504 Loan plan issues by the SBA. She further added that her company in a recent revelation realized that the budget for the fiscal year 2010 would raise the cost of approach to the SBA’s 504 program for smaller enterprises by 38.9 basis points each year. She further added that there would be an increase in the borrower fee during the 2011 fiscal year and persuaded the congress to make efforts to reduce the program costs for SBA’s 504 plan.
She said that such an increase in the cost would hit the potential borrowers at a time when there is an incumbent need in the economy for companies to create jobs, grow and help the economy to recover. She added that such a plan could interfere with the objectives of the stimulus bill. She was also concerned about the restrictions laid out by the SBA as it restricts the 504 borrowers by not allowing them to use their personal home equity to expand their foothold in the 504 plan.
She further added that the current limit of $1.5 million on the 504 debenture be increased and allow the borrowers to utilize both the 7(a) and 504 loan bars in a single undertaking and deregulate the restrictions laid out on the participation of high net worth business in the 504 plan.
