Wisconsin small businesses provide a strong structural framework for our economy: when they prosper, we all do. Nationally they comprise half of all private-sector employment, and they have created around 70 percent of net new jobs each year over the last decade.
Small businesses reflect the values we hold deeply in Wisconsin: hard work, entrepreneurship, innovation, and resilience. They anchor community and regional economies, circulating money locally and providing high-quality jobs for residents. They fuel Wisconsin’s vision for economic growth.
Too many Wisconsin small businesses, buffeted by a brutal economic crisis, may perform well in tough times but still encounter difficulty securing the loans they traditionally counted on to meet payroll, expand inventory and grow in ways that create new jobs.
On March 16, President Barack Obama signaled his commitment to help small businesses by announcing increased funding for Small Business Administration (SBA) programs and new tools to help, made available through the American Recovery and Reinvestment Act (ARRA). He made the announcement at the White House – the first SBA announcement held there in the agency’s 56-year history. His goal: to mitigate the credit crunch for small businesses and reinvest in their shared prosperity.
The SBA figures three basic strategies will take them to that goal: pay loan fees to get businesses in the door and connected to the capital they need; put banks in the mood to lend by eliminating risk in loans; and shore up the secondary market for SBA loans.
To make the 7(a) loan more accessible for small businesses, ARRA provides $350 million to eliminate up-front borrower fees on loans approved by the SBA on or after February 17th and the SBA increases their guaranty to ninety percent. The 7(a) loans are a commonly used product to secure working capital, line of credit, or to buy a business or real estate. By eliminating these fees (which can reach 3.75 percent for larger loans) and taking into account the loans’ longer term, payments will be less than conventional loans and smaller still with fees exempted. Weekly loan volume for the 7(a) program is up 25 percent as a result of these enhancements.
The SBA just announced a new program within the 7(a) category – the Dealer Floor Plan Financing loan to help finance inventory for eligible auto, RV, boat and other dealers beginning today, July 1, 2009.
I recently visited Clemens Auto Repair in Racine and learned how the owner, Dwight Geisler, took advantage of an SBA 7(a) loan and the accompanying fee waiver to sustain operations at a critical time, and to quickly hire more employees as demand grew. Dwight indicated that the loan prevented him from having to shut down his business after 33 years of successful operation in Racine.
The SBA 504 program provides large, fixed-rate, long-term loans for fixed assets such as land or buildings. It is a job creation program in the end, creating roughly one job for every $65,000 lent out. ARRA enhances this program by eliminating program fees for participants on both sides of the equation, raising the cap to $10 million if it results in energy savings or if they are a manufacturing business.
Where this program used to apply only to new construction or equipment, small businesses may now refinance fifty percent of debt used for fixed asset purchases.
Owners of the PM Sleep Center, a mattress and furniture store in Eau Claire, utilized the 504 loan program to increase their showroom space and move across town to a more visible location. In the first three months since this expansion, they have increased their workforce from five to eight and doubled their business. The SBA fee waiver saved their business $7,500.
The lending pool for SBA microloans expanded by $50 million, with an additional $24 million available to provide technical and individualized assistance and education to borrowers. Historically, these maximum $35,000 loans reach low-income individuals, women and minorities in both rural and urban areas with their start-up or newly growing businesses. Wisconsin is well-positioned to benefit from this, with six microlenders operating across the state.
SBA Surety Bonds help small businesses that compete for construction and service contracts. With ARRA funds, these bonds more than doubled, increasing from $2 million to $5 million and, on a federal project, up to $10 million if the contracting officer indicates a guarantee is required. Under the partnership, SBA provides a guarantee to a participating surety company of between seventy and ninety percent of the bond amount.
I want all Wisconsin small business owners to be aware of a brand new SBA program, America’s Recovery Capital (ARC) Business Stabilization Loans, available June 15th. ARC is designed to help small businesses reeling in the turbulent wake of this financial crisis, those that could go under without targeted help. Through ARC, the SBA will make a business’ loan payment every month for up to six months (a total not to exceed $35,000). The business then enjoys a twelve month grace period, followed by five year term to pay off the SBA loan with no interest charged. We want Wisconsin lenders and businesses to access this right away where appropriate: it will go fast. SBA projects only 10,000 of the 27 million small businesses nationwide will be able to participate before funds run out.
I will continue to partner with the SBA to promote these important programs across the state over the coming weeks. Small businesses in need of credit can learn more about these programs through their community bank, or by visiting www.sba.gov, or my website, www.ltgov.wisconsin.gov.
Barbara Lawton is the lieutenant governor of Wisconsin.
