invoice factoringOver the last few years we have all seen our economy fall, no matter which country you live in, no matter what industry you work in, everyone has been affected. Those companies that are still operating have been cutting costs, reducing staff, cutting salaries and setting higher expectations for their employees to produce more with less.
As in the NY Times on March 15, 2009 \’\'It\’s a huge step in the right direction,\’\’ Giovanni Coratolo, director of Small Business Policy at the U.S. Chamber of Commerce, said Saturday. \’\'In this economy, having the least amount of risk for banks will incentivize banks to lend to small businesses. A lot of small businesses will benefit from this.\’\’ [http://www.nytimes.com/aponline/2009/03/15/washington/AP-Obama-Small-Businesses.html?hp]
What is this all about? Essentially if you take a look at the current guarantees issued by the US Government in regards to SBA loans, they have a cap of $20 billion per year. But look a little further and they fall short of this number by over 50%. In 2009 they are expected to fund less than $10 billion. So if they are merely going to adjust the SBA factors, and we have a $10 billion reserve that is not being used, what good is this going to do for us?
So what is the plan? Offsetting some of the risk for the Lenders of the SBA loans and Temporarily reducing some of the fees on some of the SBA Loan programs. The risk offsetting tactic will be to increase some of the guarantees on the SBA Loans that are written.
It is yet to be seen as to whether this a token gesture or an actual action plan for them we will be able determine this in a few months when we can calculate what type of effect this has had on small business being able to access these funds.
Now Business Loans are all based on perceived risk, and every lender has their own guidelines and thresholds for risk, so this will vary depending on who you talk to, but lets assume the typical lender is comfortable with a 5% default rate on their loans. And the new plan from the US Government will increase their guarantee on the SBA Loans they write by 5% of the total loan amount from 85% to 90%. Now what is the actual default rate on Business Loans today? That is about 20%. So, a 5% increase in the guarantees will not come close to offsetting the lender risk. I could get into the detailed calculations of what the actual risk is, but it is pointless as we are not even close to what is acceptable.
On the bright side of things though, this is an initial attempt by Obama to help small business, something that has been a long time coming. As with the major corporations, there has been much negotiation and debate on what to do, so we will have to keep an eye on the progress and analyze the effect to determine future actions.
There are so many alternatives to SBA or bank loans today that are offered by Commercial Finance Brokers as they access to funds for Accounts Receivable Financing, Export Factoring, Purchase Order Finance, Commercial Equipment Loans and Commercial Real Estate Mortgages. Be sure to do you checking around into the various options available to you as there is a loan available for most circumstances if you have the right Finance Broker.
Wade Henderson is a recognized Expert in the Business Finance World with over 13 years Experience in the Commercial Lending Field and a strong reputation for getting the deal done. Visit his Business Finance Website to put his experience to work for you. Get a totally unique version of this article from our article submission service
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