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.

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Service and Success Go Hand in Hand

As business people we all produce a product or offer a service which we sell for a price and realize a profit. Our intention should be to gain a fair return based on how much time, expertise, energy and materials we have to invest in making our products. In the world of project and equipment financing, our goal is to serve the client; to help the business owner get the equipment they need or capital they require to continue to grow. We profit from those efforts just like any other business owner would expect and the more successfully we can support a growing company the better off we all are. The key is in the quality of the service; we have to be able to get clients approved so that we all benefit.

During the finance effort, we sometimes have to redirect the plans a client has which can be selecting a less expensive piece of equipment or getting used equipment that can do the job just as well or getting credit repaired or liens settled before attempting to finance a new machine; these options may be the best direction for business owner to go. Sometimes if there are too many issues then it can simply be a time to wait and put things on hold because forcing a high risk acquisition can be certain doom for a small business. If we want to be successful we have to offer our products so that they provide a real value to our customers; if they don’t then your client becomes a one transaction affair and the chances of repeat and loyal business is unlikely; without customer loyalty I think we all agree that our efforts will feel like we are endlessly paddling upstream.

Let us all be the light that makes a transaction memorable; the solution to someone’s wants and goals. Once you create a positive experience with a client they will return again and again because they know what to expect from your service. All of us patronize businesses which we feel will give us effort and have the best intention of supporting us. We all have gone to that small restaurant which is out of the way because they make our favorite dish or use that auto mechanic because he is thorough when fixing your car and seems to get it right or that equipment vendor that has great after-sales support and always takes your calls. Sometimes these businesses may be out of the way, higher in price or have smaller selections yet we still choose to use them because there is value in what they offer. In the end it is the effort and service that matters and paves the way to success.

How Outdated Phone Systems Are Killing Businesses

Thriving in today’s economic climate requires unified communications

Yep, those old traditional landlines are on their way out. In 2017, almost 90% of phone numbers were connected to mobile devices or internet-enabled phones. And some experts have predicted 2020 is the year that landlines finally become obsolete. (To be honest, they probably won’t disappear that fast. After all, there are still people out there using analog modems, believe it or not.)

Yet still, even with landlines falling out of favor, many businesses rely on traditional private branch exchange (PBX) phone systems for day-to-day operations.

Their trust in these systems makes sense: landlines aren’t susceptible to remote hacking (though analog lines can still be hacked locally through good old wiretapping), they usually still work when you’ve lost power, and they’re based on-premise, which gives the owner total control. Owners love total control over anything that impacts their business, especially things that affect the bottom line.

But the world of work is changing rapidly, and for any business to succeed in this moment, they need a better alternative – unified communications.

How old phone systems hurt businesses

Older PBX phone systems in today’s business environment have some pretty serious limitations. Some of those are business-impacting and result in:

  • Poor customer service: Leaving a voicemail and waiting for a response is so ’90s! In fact, most consumers expect to communicate with businesses online, be it online ordering, email, text, or live chat. If the only way to reach your business is by phone, you’re likely missing out on a major opportunity to handle service problems quickly, retain customers, and boost your reputation.

  • Internal miscommunication: Old phone systems can be frustrating for office employees to use. Imagine leaving a voicemail about an urgent issue for your boss and not receiving a response for hours or days. Relying on outdated technology makes employees feel less productive, which can spiral into other issues.

    According to a 2018 Unisys Corporation study, these frustrated employees are 450% more likely to quit than employees at companies with better tech solutions. Though this study sounds pretty far-fetched, and it is quite possible that the presence of outdated technology is an indication of a bigger problem with the business. Nevertheless, this questionable study supports the narrative that old technology can cause serious problems within a company. Thus, it is worth mentioning. Clearly, updating your system and improving communication for everyone beats recruiting and training new employees.

  • Less versatility: As many companies have made the switch to remote work, they’ve found landline phone systems to be far less versatile than VoIP-based PBX systems. Landline systems are tied to a specific geographic location and connect to the company’s separate phone network through phone hardware (e.g., phone cables, phone wall ports, etc.). Thus, they can’t be easily integrated with computer software applications, SMS and MMS messaging, video calling, chat apps, and other cool features required to make remote work easy. In contrast, a unified communications system supports all of these tools, making it super easy to onboard remote employees.

  • Difficulty diagnosing problems remotely: Diagnosing and fixing problems with traditional PBX systems requires troubleshooting from the IT department (if you have one, that is) or a technician from the phone system provider. The process involves testing connections, assessing internal and external parts, and likely fumbling with equipment on your building’s exterior. This means scheduling a day and time for the repair, and in the meantime, your system remains down, causing you lost revenue.
    On the other hand, to address problems with cloud-based systems, you have access to round-the-clock tech support that can tap into your system and get things back up and running quickly. No appointment required.

  • Hard to grow: When your business grows, it’s quite difficult to scale your old phone system up. Usually, with every batch of new users, you will have to add a bunch of new hardware. This hardware is usually proprietary, costly, and likely has to be installed by a skilled technician. Web-based phone systems are much easier to expand.

Why your business needs unified communications

As an alternative to your old phone system, it’s time to embrace unified communications. Generally speaking, this is a comprehensive service that enables all employees in your company to communicate in a way that delivers the best business results. Most unified communications components are based on Voice over Internet Protocol (VoIP), which gives you the ability to communicate from any location using the same phone number, extensions, and features.

And looking more specifically at a VoIP PBX system’s benefits over an old phone system, there are several advantages. You have the option of using both physical phones and “soft phones”, which are computers or mobile devices that use specialized communications software. VoIP PBX systems also connect to all of your business locations, enable you to respond to messages and requests in a timely manner, and can easily be scaled up or down at any time. In short, a VoIP PBX system moves and grows with the ever-changing needs of your business. Your old phone system limits your options to serve employees and customers, and it ultimately cuts into your profits.

Set up your Virtual PBX system today

Work with us to introduce cloud-based phone systems into your day-to-day business operations. Our VoIP PBX system helps you cut costs, connect all your business locations into one communications domain, send free SMS messages from business phones and desktops, and access free 24/7/365 tech support. Contact us today to discuss your needs and explore the best options for your company.

Important Facts About Small Business Administration Loans

The US Small Business Administration has introduced different types of loans to provide financial assistance to startup companies and help them to run their businesses successfully. This government agency of the United States offers these loans to the startup owners who are not eligible to get money from banks or other traditional financial organizations. In fact, these funds are designed with the objective of supporting the growth and development of these companies and improving the economic situation of the United States. Here are a few essential facts that you should know about the lending options offered by the Small Business Administration.

No disposal of loan directly from SBA

SBA does not offer these funds directly to the people who want to borrow money for different purposes. In fact, the organization works in partnership with multiple lenders, community development companies and micro-lending agencies to offer the money. Plus, it takes the responsibility of determining the terms as well as regulating these loans.

Devoid of credit background check

Unlike traditional lending companies, the SBA does not check the credit records before offering the money. It means that you can get money with bad credit records such as insolvency, bankruptcy and so on.

Multiple loan programs

The loans offered by SBA are divided into different categories such as 504, Express, Patriot and 7 (a). These funds are offered to the businesses depending on their requirements and preferences. However, it is important to remember that the banks or other private organizations may not provide these funds. The loan programs might vary and the requirements are set on the basis of the individual terms or policies offered by the banks.

A great help for startup companies

Small companies are in need of these funds than the popular ones. The reason is that these companies have started their journey and do not have sufficient amount of money in order to make a good investment. It would therefore be difficult for them to get the loans at high rates of interest. Unlike traditional lending firms, the SBA offers them at low rates of interest, thereby allowing the borrowers to repay the money quickly.

Submission of necessary documents

In order to secure the funds, you have to submit necessary documents to SBA as well as the lending companies offering the loan. Besides these essential documents, you also have to complete other important formalities such as submission of financial statement, business plan, financial statements, documents related to tax return and other important information associated with loan acquisition.

Act as guarantor

The banks and other private financial organizations do not offer funds to the borrowers who do not have properties that can be used as collateral. For these borrowers, the SBA acts as guarantor. The guarantee offered by SBA provides these banks the assurance that these funds would be reimbursed quickly.

Fast loan acquisition

Obtaining small business funds from the Small Business Administration is a speedy process. They are like ready-made money that may be secured once you apply for them.

Expanding Small Business Financing Opportunities For Your Business

Small business financing is often the only way for some businesses to get the capital they need to open their doors, expand operations, or develop new services and products. However, the Great Recession created some significant hurdles for personal and business loan applicants who boasted less-than-perfect credit scores.

However, recent investigations suggest that banks are starting to open their doors to business owners in greater numbers. Although credit requirements remain above what they were before the recession, lending has indeed warmed up for many business owners. Where many businesses were just “treading water,” they’ve now entered an era of cautious and optimistic growth.

Another positive sign in small business financing is the improved cash flow in the nation’s major banks, which has led to increased lending activity and an overall reduction in average commercial loan rates. With the recession fading into the background of the economy, small businesses that have been waiting for an improved economy are finding that banks are willing to deal with businesses that might have had budget shortfalls a few years ago. Small businesses and fledgling companies that have been conservative in hiring and expansion efforts post-recession have finally become eligible for loans.

According to data compiled by the federal government, one of the major sources of small business financing today has been loans through the Small Business Administration (SBA). One of the reasons why looking at banks that provide loans that are guaranteed by the SBA is a savvy way of obtaining a business loan is because the government’s list of banks represents lenders who are already interested in making loans to small entities. Looking at these banks reduces the time a business owner might need to spend to find commercial lending opportunities. It’s also a good idea to locate a bank with loan officers who have prior experience with SBA loans.

However, getting business and commercial loans still requires a solid application. In small business financing, one of the most powerful features of a loan application is the business plan. Banks are much less likely to hand over a check if the business plan isn’t fleshed out, accurate, and professionally written. A business plan with typos or a lack of information on cash flow, budget, and fiscal projections won’t impress a loan officer. Some small business experts advocate hiring a business plan writer to ensure the final document is as professional as it can be when it’s sent to the bank.

The government has taken an interesting step in encouraging growth of small business by reducing the fees associated with SBA loans. Borrowers already enjoy SBA loan rates that tend to sit below traditional loan rates, but low fees on certain SBA loans may make these small business financing methods even more cost-effective than they were in the past. For example, loans under $150,000 no longer have fees and short-term loans guaranteed by the SBA also feature rates lower than many standard bank loans. This means that brand new start-ups or businesses that are nothing more than an idea in a garage are possible for new borrowers.

Small business loan applicants should remember that the interest rates on SBA loans aren’t set by the government, but are part of a negotiation between the bank and the applicant. However, there are maximum rates set in place so the interest on business and commercial loans will never exceed a certain amount. Since the bank has some leeway in setting an interest rate, it’s worth it for a small business owner to come to the table with a credit rating that’s as high as possible. Small business financing today isn’t a cakewalk, but getting a loan as a brand new business is possible in today’s lending environment.