Is the time right to start a new business?
The Recovery Act recently passed by the Obama Administration contains key provisions geared towards assisting small business by increasing the amount of SBA loan guarantees to 90%, waiving application fees, and offering various tax breaks. What does the Recovery Act mean for you as a current small business owner or someone considering opening a new retail business?
The topic of the new small business incentives and its effect on the economy received mixed reviews recently at the Small Business Ideas Forum. Some business owners believed that the incentives would spur growth and development, while others believed the strategy was geared towards long-term economic growth and would be of little help to the average business person struggling financially right now. Most everyone took a “we’ll see” attitude and were obviously wary of taking on any more debt, including SBA guaranteed loans, given the present economy.
Kim Taylor of KimiWeb, a web design and graphics company, wondered if now was the time to take advantage of the new small business incentives to upgrade business equipment and software. She documented her experience as she walked through the application process on her My2Cents blog. Kim’s conclusion:
“In reality, if you are attempting to finance the purchase of real estate or launch a new business in a low income or rural area… maybe. If you are looking for assistance in troubling economic times… probably not.”
While the Recovery Act may not be a godsend for current business owners looking for financial assistance – especially those whose credit scores have been injured in the recession, it may help those persons looking to purchase retail property or start/develop businesses in low income or rural areas.
If you are an entrepreneur looking to start, expand or purchase a small business, now may be a good time for you to look closer at an SBA loan. The SBA has raised its guarantee and eliminated the fees for borrowers on certain of its 7(a) loans. 7(a) loans are issued by a bank to a small business to support its operations. While the incentives were included to motivate banks to increase small business lending, be aware that little has been done to accommodate small business owners who have less than good credit.
In addition to new 7(a) loan incentives, for a limited time the SBA has also eliminated fees for borrowers and third party lenders on its 504 Certified Development Company Loans. These loans are geared towards the growing small business and tout fixed-rate financing for MAJOR fixed assets, such as land and building purchases, and capital machinery and equipment. These loans focus on community development, creating new jobs and implementing modern technologies.
In 2008, of the $18 billion in SBA backed loans, 35% went to start-up businesses, nearly 32% ($5.7 billion) went to minority owned businesses, and nearly 23% went to women owned businesses. The most frequently financed industries in 2008 were services, retail trade, accommodation/ food service, construction firms, and manufacturing.
SBA-backed loans are three to five times more likely to be made to minority and women owned businesses than conventional small business loans made by banks, according to a recent study by the Urban Institute.
