Will New Stimulus Fix Small-Business Credit Crunch?

As Congressional legislators hammer out the provisions of a proposed second round of federal stimulus money, some business leaders worry that the Hiring Incentives to Restore Employment Act doesn't address one of the business community's ongoing problems: lack of access to capital.

The Senate bill has a lot of goodies in it for small business, including a payroll-tax exemption for workers hired this year who were previously unemployed, and an extension through 2010 of the bigger depreciation allowance we've had in 2008 and 2009, which at $250,000 was double the previous limit.

What's not there: anything that makes it easier for small businesses to borrow. Business groups are seeking an extension of the original stimulus-bill's SBA lending provisions, especially the increase in the SBA loan guarantee from 75 percent to 90 percent. It got a last-minute extension in December, but that expires this month. A coalition of 80 business groups dubbed the Small Business Access to Credit Coalition sent a letter to the Senate today, calling for the guarantee to extend to the end of 2010.

Other things the coalition would like to see include an increase in the maximum size of SBA 7(a) and 504-program loans from $2 million to $5 million. The letter calls for $354 million in new money for SBA, to allow it to ramp up lending. The coalition forecasts the increased SBA lending would bring more than 500,000 new jobs this year. "Small businesses cannot be the engine of our economy if they continue to face unrelentingly tight credit markets," the group writes. Signers include the International Franchise Association, International Council of Shopping Centers, and many others.

While many think more SBA loans are the answer, others say access to capital isn't the major problem any more--it's shrunken sales. There's money out there to borrow, but businesses can't qualify for loans because sales are down. Many also aren't even trying to borrow, having heard a bazillion times in the media that banks aren't lending.

New data released this week from small-business research firm Sageworks shows sales were down more than 6 percent last year. Cash as a percent of assets isn't much off of 2006 levels--12.6 percent versus 12.7 percent. Perhaps a sign of the credit crunch lies in the debt-to-equity news: the leverage ratio was 2.71 in '06, and it's down to 2.25 now.

Upping the SBA loan ceiling seems more like it would help medium-sized businesses more than small. Most SBA loans are for far less than $2 million.

But maybe it's a simple inflation problem. Many higher-end franchises need more than $2 million to get their doors open at this point, so perhaps the increased limit would help some new franchises launch.

What do you think? Would injecting more SBA funding, keeping the higher guarantee and raising the loan limit help your business to grow? To hire? Leave us a comment and voice your opinion.