Home > News > ARRA & SBA -- economic assistance for your business at a glance!
 AMERICAN RECOVERY AND REINVESTMENT ACT
The American Recovery and Reinvestment Act (ARRA), commonly known as the "Recovery Act" or the "Stimulus Package," was signed into law by President Obama on February 17, 2009. The purpose of ARRA is to preserve and create jobs, assist businesses most affected by the recession, provide investments for technological advances in science and health, and stabilize state and local government budgets to minimize reductions in services and the need to further raise taxes. Little wonder it is a major topic of interest to citizens, businesses and local governments. Through this Act, Maryland has ARRA grant and contract opportunities available to small business owners. Maryland's site contains a link for Recovery funded and related job opportunities, as well as a list of tax benefits created by the passage of ARRA. If you have not yet visited Maryland's Recovery website, it is definitely worth visiting! Additional sites worth visiting include: Federal Business Opportunities (FedBizOpps) -- Some big winners in stimulus funding include NIH, transportation, health and human services, the Department of Defense (ARRA and BRAC), energy, environment, broadband and education. This website contains ALL open funding opportunities, not just ARRA. Grants.Gov -- This is another useful website for grant opportunities, not all of which are aimed at business. NIH Challenge Grants in Health and Science Research -- The NIH has identified a range of Challenge Areas that focus on specific knowledge gaps, scientific opportunities, new technologies, data generation, or research methods that would benefit from an influx of funds to quickly advance the area in significant ways. The NIH has designated at least $200 million in FY 2009 and FY 2010 for this initiative. Maryland Procurement Technical Assistance Program -- The Maryland Department of Business and Economic Development (DBED) has small business financing assistance for qualified small and minority businesses through MEAF and MSBDFA programs. Contact Les Hall at (410) 767-6356 for more information.
In addition, DBED's website provides powerful information tools and links to funding opportunities to help Maryland's small businesses access stimulus dollars. For assistance with ARRA questions and research, please visit DBED's website, call 1-800-541-8549 or email ARRA@choosemaryland.org. ========
 SBA TO OFFER FLOOR PLAN FINANCING TO AUTO, RV, OTHER DEALERSHIPS BEGINNING JULY 1ST
The U.S. Small Business Administration will offer government guaranteed loans to finance inventory for eligible auto, recreational vehicle, boat and other dealerships under a new pilot program announced today by SBA Administrator Karen Mills. Dealer Floor Plan (DFP) financing will be available beginning July 1, according to Mills. She announced the new program during a visit to Kokomo, Ind., with Dr. Ed Montgomery, President Barack Obama’s Director of Recovery for Auto Communities and Workers. “Countless small businesses, including dealerships, across the country are facing significant challenges as a result of the uncertainty in the auto industry,” Mills said. “Floor plan financing can offer some dealerships the opportunity to get through these tough economic times by allowing them to keep their inventory and cash flow intact, as well as save the jobs these small businesses provide.” Mills and Montgomery discussed the new DFP pilot program, as well as other resources offered by SBA and the federal government to help small businesses in communities impacted by the troubles facing the auto industry. “Small businesses are the engine of our economic growth,” Dr. Montgomery said. “We are committed to finding ways the federal government can cut through red tape and get resources to these companies quickly during these tough economic times. From supporting nearly $4 billion in lending to small businesses across the country since February to the Dealer Floor Plan financing announced today, the SBA is making the resources provided in the Recovery Act accessible and working to provided needed credit. The President is committed to continuing to work with federal officials to identify resources like these that make a real difference in the lives of our auto communities and workers.” Floor plan financing is a line of credit that allows dealers to borrow against their inventory, and then repay that debt as they sell their inventory or borrow against the line of credit again to add new inventory. Under the DFP pilot program, the SBA will provide loan guarantees for lines of credit through its 7(a) program. DFP loans will be made through SBA lenders only for titled inventory, including autos, RVs, manufactured homes, boats and motorcycles. The pilot program will begin July 1 and will be available through Sept. 30, 2010, at which time the SBA will make the determination of whether or not to extend the program. DFP loans will be available for a minimum of $500,000 up to the $2 million allowable under the 7(a) program. With a maximum repayment term of five years, the loans will come with a 75 percent government guarantee. Borrowers will also benefit from the temporary elimination of fees on 7(a) loans made possible by the America’s Recovery and Reinvestment Act of 2009. During a roundtable discussion later in the afternoon with local small business owners Mills provided information on other SBA loan programs and benefits provided by the Recovery Act. Specifically, small business owners can take advantage of higher government guarantees on some 7(a) loans, as well as reduced fees on both 7(a) and 504 loans. The agency is also providing more tools to help small businesses compete for federal government contracts, along with technical assistance and counseling for business owners and entrepreneurs to help them deal with the economic challenges they face. “We are committed to being the real partner small businesses need at this critical time,” Mills said. “Floor plan financing is just the latest tool in our toolbox to help small businesses in communities like Kokomo weather this recession and drive our nation’s economic recovery.” For additional information, please visit SBA's website or click on one of the following links: ======== CHANGES TO SBA 504 LOAN PROGRAM WILL ALLOW BUSINESSES TO REFINANCE EXISTING DEBT, EXPAND, CREATE NEW JOBS
Small businesses seeking to expand will be able to refinance existing loans used to purchase real estate and other fixed assets as a result of permanent changes to the U.S. Small Business Administration’s 504 Certified Development Company loan program. The changes were authorized in the American Recovery and Reinvestment Act of 2009. The permanent changes will allow small businesses to restructure eligible debt to help improve their cash flow which, in turn, will enhance their viability and support growth and job creation. The 504 loan program can be used to purchase business real estate or fixed assets, such as heavy equipment or machinery, and expand current development projects. “This is one more piece of the Recovery Act that is going to have a direct impact and put more money in the hands of small business owners just when they need it most,” SBA Administrator Karen G. Mills said. “Lower interest rates mean lower payments and less money going out the door each month in debt repayments. That means more cash on hand to keep their doors open, their employees working and to even expand and create more jobs.” Mills pointed out that the 504 program’s refinancing changes are the latest in several Recovery Act provisions that have been implemented by the SBA in recent weeks. On March 16, the agency temporarily raised to 90% the guarantee level on many of its 7(a) program loans and reduced fees on both 7(a) and 504 loans, and also doubled to $5 million the surety bond guarantee level for small businesses competing for construction and service contracts. Additionally, on June 15th, SBA ARC loans became available for viable small businesses facing immediate financial hardship. “All of these steps, along with other Recovery Act provisions, are aimed at increasing access to capital and giving small businesses just what they need to help lead our nation's economic recovery,” Mills said. The 504 loan program is administered through 271 Certified Development Companies across the nation. SBA today began implementation of the changes by publishing them as a permanent rule in the Federal Register. The changes announced today include: Debt Refinancing: Legislation allows 504 program projects to include a limited amount of debt refinancing if there is a business expansion and the debt refinanced does not exceed 50% of the projected cost of the expansion. “Expansion” includes any project that involves the acquisition, construction or improvement of land, building or equipment for use by the small business. The following are some of the conditions under which borrowers will be eligible for refinancing: The debt being refinanced was incurred to acquire land, to construct a building or to purchase equipment. The assets acquired must be eligible for financing under the 504 program. The existing debt is collateralized by fixed assets. The existing debt was incurred for the benefit of the small business. The new financing provides a substantial benefit to the borrower when prepayment penalties, financing fees, and other financing costs are taken into account. The borrower has been current on all payments of existing debt for one year prior to the date of refinancing.
For more information on the 504 loan program and eligibility requirements, go to www.recovery.gov or www.sba.gov/recovery. ======== SBA LAUNCHES NEW 100% GUARANTEE ARC LOAN PROGRAM
Small businesses suffering financial hardship as a result of the slow economy may be eligible to receive temporary relief to keep their doors open and get their cash flow back on track through to a new loan program announced today by SBA Administrator Karen G. Mills.
Beginning on June 15, SBA will start guaranteeing America’s Recovery Capital (ARC) loans. ARC loans are deferred-payment loans of up to $35,000 available to established, viable, for-profit small businesses that need short-term help to make their principal and interest payments on existing qualifying debt. ARC loans are interest-free to the borrower, 100% guaranteed by the SBA, and have no SBA fees associated with them. “These ARC loans can provide the critical capital and support many small businesses need to make it through these tough economic times,” said Administrator Mills. “Together with other provisions of the Recovery Act, ARC loans will free up capital and put more money in the hands of small business owners when they need it the most. This will help viable small businesses continue to grow and thrive and create new jobs in communities across the country.” As part of the Recovery Act, the ARC program was created as a no-interest, deferred payment loan to help small businesses that have a history of good performance, but as a result of the tough economy, are struggling to make debt payments. ARC loans will be disbursed within a period of up to six months and will provide funds to be used for payments of principal and interest for existing, qualifying small business debt including mortgages, term and revolving lines of credit, capital leases, credit card obligations and notes payable to vendors, suppliers and utilities. Repayment will not begin until 12 months after the final disbursement. Borrowers don’t have to pay interest on ARC loans. After the 12-moth deferral period, borrowers will pay back the loan principal over a period of five years. ARC loans will be made by commercial lenders, not SBA directly. For more information on ARC loans, visit SBA's website. ======== SBA ENCOURAGES LENDERS TO OFFER LOAN DEFERMENT RELIEF TO SMALL BUSINESSES
In response to the financial crisis, the U.S. Small Business Administration today announced it is strongly encouraging its participating 7(a) lenders and Certified Development companies to work with business borrowers to provide them with the flexibility they need to keep their businesses running during these difficult economic times.
As access to credit and capital has tightened, many businesses face increased challenges in meeting their financial obligations. This is especially true of small businesses hit hard by the recent economic slowdown that are now unable to make payroll, or purchase essential inventory. SBA is reminding participating lenders they have the authority on a case-by-case basis to extend temporary payment relief for qualifying borrowers with 7(a) and 504 loans who are struggling to make their payments. “The SBA is here to help small businesses during these difficult economic times. We are encouraging our lending partners to follow suit by extending three-month payment deferments on their SBA guaranteed loans to qualified borrowers who need relief,” said SBA Acting Administrator Sandy K. Baruah. “We recognize that small business owners are faced with challenging decisions right now. By providing three-month deferments to qualifying borrowers who are struggling, our lending partners can help small business owners free up the capital they need to maintain their businesses.” If a deferment longer than three consecutive monthly payments is needed for a loan, borrowers can work directly with their lenders who in turn will work closely with the SBA to identify the best solution. At the same time, the SBA is asking its lenders not to broadly call borrower loans due to changing financial variables, such as fluctuations in personal credit scores, declining collateral values, and reduced home equity, which are currently affected by the disruption in the financial markets. The SBA has issued a notice that will be distributed widely to its lenders and 120 field offices encouraging them to look at these cases individually and to work with individual borrowers in order to facilitate the longer term success of these small businesses. For more information about all of the SBA’s programs for small businesses, visit the SBA’s website. ======== SBA LOAN FUNDS AVAILABLE FOR PURCHASE OF COMMERCIAL REAL ESTATE Small business owners thinking of purchasing or renovating commercial real estate or purchasing equipment to grow or expand their businesses should consider the U.S. Small Business Administration’s (SBA) 504 Loan Program. The 504 loan provides small businesses access to the same type of long-term, fixed-rate financing enjoyed by larger firms. Interest rates are equivalent to favorable bond market rates. Most Maryland businesses would be eligible for this loan program. The 504 Loan Program defines a business as small if its net worth is under $7 million and net profits, after taxes, are under $2.5 million. Almost any type of legitimate business is eligible for 504 financing, including manufacturing, wholesale, service, professional service or retail. A 504 loan may be used to purchase fixed assets such as: land and improvements, including owner-occupied buildings, grading, street improvements, utilities, parking lots and landscaping, construction of new facilities, parking lots and landscaping, construction of new facilities, or to modernize, renovate or convert existing facilities or to purchase long-term machinery and equipment with a useful life of at least 10 years. Soft costs like architectural and legal fees, environmental studies, appraisals, and interest and fees on the construction and/or interim bank financing can also be rolled into the loan. Financing for other needs such as working capital, inventory, debt consolidation or refinancing are eligible through a separate SBA 7(a) Loan Guaranty Program. A typical 504 project is structured with fifty percent of the project costs provided through a private-sector lender. This senior loan is usually for a 10-year term at a fixed or variable rate, depending on the relationship with the lender. Forty percent of the project costs are financed with a fixed-rate debenture secured with a junior lien from a SBA Certified Development Company (CDC). The debenture is backed by a 100 percent SBA-guaranty. And the final 10 percent of the project cost is provided by the purchaser. The low 10% down payment is the big attraction of this program. It is possible to require even less from the business if a city, town or the state trying to attract businesses to their community is willing to provide a small piece of the financing in a subordinate position. Because of the lower down payment required and the ability to finance the soft costs, the small business will realize upfront cash savings of approximately $100,000 on a $1 million project.
The maximum SBA debenture can be up to $2 million. Certain manufacturing entities are eligible for up to a $4 million debenture. This means that a CDC can work with you to put together financing for a $10 million project with the bank providing a $5 million first mortgage with a SBA 504 debenture of $4 million, and only 10% equity. Maturities of 10 or 20 years are available. Interest rates on 504 loans are pegged to an increment above the current market rate for 5-year and 10-year U.S. Treasury issues. The rate on the 504 loan is fixed for the life of the loan and is set when the CDC sells the bond to fund the loan. Effective all-in rates, which include all fees and closing costs, on 20-year bonds vary monthly. Example: The June 2008 rate wass 5.628%; fixed for 20 years. Consider the following advantages of the SBA 504 program versus conventional mortgage financing: Advantages to the business: Low down payment. In most cases, the company is required to inject just 10% of the total project cost, which includes renovations and soft costs. This allows the business to preserve cash for working capital. (Ordinarily, banks require a 20 to 30% down payment on the purchase price.) Fixed rate on the SBA 504 portion.Small businesses don't have to worry about the prime lending rate going up and can calculate the exact amount of their mortgage payments for 20 years. Long term. 504 loans are for 10 or 20 years. Because the CDC is in second lien position, the lender doing the 50% first lien loan is willing to lend at a longer term. Longer terms reduce monthly payments. Low interest rate.Even with fees and closing costs included in the rate, the 504 program offers a low fixed rate for a subordinate mortgage loan. The blended rate between the lender portion and the SBA's 504 portion makes the project very affordable, particularly for small businesses.
Advantages to the first mortgage lenders in a 504 project: The lender has less risk because the SBA 504 loan is in second position A lower loan to value ratio The first mortgage lender gets CRA credits Keep a growing customer happy
Advantages to the community: The community gets the advantage of keeping or attracting a healthy, growing small business that will be creating jobs and contributing to the health of the local economy. For more information: To learn more about this program, visit SBA's website, call the SBA Baltimore District Office at (410) 962-6195, or contact one of the following active Certified Development Companies serving Maryland.
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