Stimulus creates opportunities for small business loans
Thursday, 19 March, 2009
Many people see investing in small businesses as one of the best ways to get the economy moving again, and a portion of the stimulus bill aims to do just that by making 504 small-business loans more affordable. "We are starting to see an up tick in ... our pipeline - the loans that we're seriously talking to bankers about or to business owners," said Jane Sherzer, president of the Michigan Certified Development Corp. "I would say in the last 30 or 45 days we've seen a fair increase in that."
Before the stimulus, the MCDC's volume had been down pretty significantly from last year - around 50 percent down - so she doesn't see a return to historic levels anytime soon. But she is very optimistic about the stimulus and that it will continue to mean good things for businesses in Michigan and the MCDC. One part of the stimulus that Sherzer knows is driving a lot of the initial volume right now is the fee subsidies. The SBA will subsidize a significant portion of the upfront fees borrowers pay. Sherzer believes that the 1.5 percent fee paid to the CDC will be subsidized in its entirety. Also, the 0.5 percent bank fee will be subsidized in some cases, Sherzer said.
"So all borrowers are going to see some benefit, and some borrowers are going to see even more benefit on top of that," she said. The stimulus provides $375 million for these subsidies, which will go to a number of programs yet to be determined. And the subsidies only last as long as the money does, or until Sept. 30, 2010, whichever comes first. "That's a temporary fix," Sherzer said. "But the other really big news in our world is the fact that now we will be able to refinance a portion of existing debt when there's new money expended."
This is a permanent change that Sherzer and the MCDC have been advocating for more than five years. Every year, she sees several projects where business owners are expanding - adding to their buildings, buying equipment - but have underlying debt. "In the past, we've just had to leave that debt there, we couldn't do anything about it, but now we'll be able to refinance a portion of it," she said. Refinancing is good for the business owners because the terms the SBA can offer are better than what the traditional bank transactions would be, Sherzer said. It's also good for the banks because they can reduce their risk, and it will free up capital that they can lend to other businesses.
Another portion of the stimulus will try to open up the secondary market, Sherzer said. "That will affect quite a few banks in Michigan," she said. "Many banks in Michigan choose to hold the loans - not everybody sells them into the secondary market - so there will be selective benefits throughout the banking system in Michigan." But it's still a good thing, she added. Anything that gets capital into the hands of small businesses so they can grow and create jobs is a good thing, she said.
"We're just encouraged," she said. "We're a long way away from where we were a year ago, but ... we just really believe that when things hit, they should hit pretty quickly, and we should recover at a good clip." The MCDC hired a couple of people in November, Sherzer said. And the organization has placed loan officers across the state - in Rockford, the Detroit area, Ann Arbor, Cadillac and Lansing. Sherzer thinks there's going to be opportunities coming - being close to the market is going to help.
"Obviously it's a tough time to be in this business - it's a tough time to be in any business - but we are optimistic about the capabilities of the businesses in the state of Michigan, and we know we're going to come around," she said. "And we're going to be ready to take advantage of that and to help small businesses when it does happen."
Source: http://www.mlive.com/
