Small businesses will drive economic recovery

    We have arrived at an unusual moment in our history; a time when Americans – for understandable reasons – are concerned about our economic security.
    The wild ride on Wall Street and the economic crisis have all of us – even those who always thought that Wall Street was far away and irrelevant to the lives of everyday businesses and families – paying close attention to the intricate workings of the financial markets.     The national and global economies are the topic of conversation these days. Many experts believe that small businesses and entrepreneurs will be critical to our economic recovery.
    Today, I will offer some observations about the state of the economy and its impact on small business, and about what the U.S. Small Business Administration is doing to encourage banks to lend to their small business customers.
    This global financial situation has a serious impact on America’s small businesses. Businesses are finding it difficult to get loans to start, expand, or even maintain operations. This is troubling because small businesses create two-thirds of the new jobs in this country and we can’t have a robust economy without a robust small business sector.
    Small business owners are facing two serious challenges: access to capital and declining business volume. The latter challenge is tied to consumer confidence, which of course will take time to recover. The former of these challenges, access to capital, will also take time to resolve, but I’m pleased to report that the Small Business Administration has taken several steps to get credit flowing again to small businesses.
    First, the Small Business Administration offers the one thing that financial institutions are looking for today – reduced risk. Through our loan programs, we guarantee up to 85% of a small business loan made by a financial institution. Because now is the ideal time for more banks to make SBA loans, we have engaged in an effort to bring more banks into the SBA family.
    SBA has accelerated the roll-out of a new program, Rural and Small Lender Advantage, which targets small, regional, and community banks in both rural and urban areas. This program makes it easier, and lowers the cost for banks to make SBA loans.
    Second, given that 40% of all SBA-backed loans are sold in the secondary financial market, which has essentially become frozen, SBA has taken action.
    SBA enacted emergency regulations that allow financial institutions to use the LIBOR rate, in addition to our long-standing Prime rate, which will allow financial institutions to maintain a profitable “spread” between the cost of their capital, and the interest they receive from small business loans.
    We also developed new rules that make it easier to assemble and sell SBA loan packages in the secondary market, helping to ease the logjam that exists today.
    Packages for the secondary market can now contain loans with multiple interest rates that meet a specific average as opposed to the requirement that all loans carry the same interest rate. The enhanced flexibility in the loan pool structures can help affect profitability and liquidity in the secondary market for SBA guaranteed loans, especially with the current market conditions.
    Third, SBA worked with the Treasury Department to ensure that SBA-backed small business loans were included in the new Asset-Backed Securities Lending Facility (TALF), which will extend low-interest loans to financial institutions using SBA-backed loans as collateral. This will be an important tool, once implemented, in getting loans to small businesses flowing once again.
    Finally, SBA offices in New England have established hotlines to field questions from small business owners about the uncertain economy. The hotline number in Maine is: 207-622-8553
    In conclusion, with historically low interest rates today, the challenge we face today is an access to capital crisis, not a cost of capital crisis.
    This is a critical principle of the SBA’s approach to the crisis. Remember, a good idea without capital is simply that — just an idea. Without capital, our innovators can’t innovate and our entrepreneurs are without enterprise.
    We are in extraordinary times and extraordinary action was called for. When government, and only government, has the scope, patience, and resources to act, I believe it has the obligation to act.
    Sanford “Sandy” Blitz is New England Regional administrator with the U.S. Small Business Administration.