Guidant Financial Group Blog

The stimulus package backed by President Obama passed the House without any Republican support last week, and it is now being debated in the Senate. Many parts of the package are controversial, and Republican leaders say that it will likely not pass in its current form. It could be a while before the President signs off on any stimulus plans.

Though we must wait for any outcome to be certain, it is never too early to examine parts of the bill and how they may stimulate businesses and the economy. One of the less controvesial initiatives is explicitly designed to do just that: an allocation of $430 million to the Small Busines Administration to revive its ailing loan programs.

According to an article last week in the Washington Business Journal, "The bill would increase the government guarantee on the SBA's 7(a) loans, and empower the agency to make loans directly to small businesses, a function that now is performed by private-sector lenders."

As credit has tightened, jobs have disappeared and fears have risen, lenders have been cutting back on ditsributing loans—even ones deemed far less risky than the toxic investments that have caused major losses in the last year. Loan activity has dropped dramatically from the beginning of the fiscal year with no sign of slowing yet. However, "The legislation would encourage lenders to start making 7(a) loans by temporarily increasing the amount guaranteed by the government from...[which] would make the loans less risky for lenders and free up capital for additional loans." President Obama also has called for the SBA to make direct loans and for lower fees on SBA loans.

Costly program fees have driven away lenders, many of whom have been forced to draw back loans across the board in the wake of the subprime mortgage crisis. To make these loans more profitable, the SBA has allowed lenders to charge higher interest rates. This could be bad news for borrowers, but the weakened economy has also lowered demand for these loans and competition will still exist between lenders for creditworthy businesses and entrepreneurs.

For those interested in obtaining SBA loans, Guidant Financial Group is an excellent place to start. Of course, many business owners are still only just learning about financing their business debt-free using their own retirement funds through 401(k) small business fianancing. Both options may be worth exploring.