Articles Posted in Financing your Startup

883336_64495290_01242012.jpgPresident Obama announced a proposal on January 13, 2012 to ask Congress to authorize the consolidation of several federal agencies that deal with business and trade, including the Small Business Administration (SBA). Other agencies affected by his proposal are the U.S. Trade and Development Agency, the Export-Import Bank, the Overseas Private Investment Corporation, the Office of the U.S. Trade Representative, and several programs operated directly by the Commerce Department. Supporters of the consolidation proposal emphasize the cost savings and added opportunities for small business. Critics worry about transparency and balancing small business interests with those of larger organizations.

President Obama said that the newly-consolidated entity would streamline various government functions and allow a “one-stop shop” for business development, financing, and expansion. He continues to assert his support for small businesses, and he raised the SBA to a cabinet-level agency. This means that SBA Administrator Karen Mills will report directly to the White House instead of the Department of Commerce.

One supporter of the proposal interviewed by CNN argues that consolidation opens up new opportunities for entrepreneurs who might have been deterred by the complicated web of government agencies that deal with business interest. Putting agencies with related roles together under one roof can also save costs for the government, leading to greater efficiency and therefore more support for businesses. Supporters in Congress also say that small businesses could have advocates at higher levels of decision-making after consolidation.

Critics of consolidation worry, first and foremost, that small business interests will have to compete for attention if they are in the same big pot with large, multinational corporations. The giant organizations might inevitably overshadow small business in such an arrangement. Trade groups have also expressed concerns. One organization worries that creating a larger government agency will hurt transparency and make it more difficult to ensure the federal government meets the legal requirement that 23 percent of federal contracts go to small businesses. Another group worries that a larger agency would impact the SBA’s loan programs.

The SBA was formed in 1953 to support small businesses and entrepreneurs and to help businesses in areas affected by disasters to recover. Much of its assistance to businesses is in the form of loans issued by private financial institutions and guaranteed by the SBA up to a certain amount. It also enforces the federal government’s policy of giving a minimum percentage of federal contracts to qualifying small businesses. The SBA focuses on U.S.-based businesses. Other agencies included in the consolidation proposal, such as the U.S. Trade and Development Agency, focus on American businesses abroad. The proposal could potentially open up new opportunities for small businesses that have only availed themselves of the SBA’s programs so far, but critics’ concerns are also important to keep in mind.
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1042389_55375705_01082012.jpgThe latest federal legislative effort to help small businesses is the State Small Business Credit Initiative (SSBCI). It is part of the Small Business Jobs Act of 2010 signed by President Obama in September of that year. It provides $1.5 billion to augment the states’ small business lending programs. According to the U.S. Treasury Department, the SSBCI is expected to trigger as much as $15 billion in new lending to small businesses. Participating states have, or will, receive a disbursement based on considerations like the total number of jobs lost in the 2008 recession. States then leverage that money to encourage private investment, with a goal of raising ten times the original amount.

The federal government has passed several stimulus programs since President Obama took office in 2009 that have offered varying degrees of support for small business. The $840 billion stimulus passed in 2009, according to many critics, did not do much to help small businesses, and the measure garnered few accolades in small business communities around the country. The $30 billion Small Business Lending Fund, also part of 2010’s Small Business Jobs Act, reportedly ended up mostly in the hands of many of the banks receiving Troubled Asset Relief Program (TARP) money, doing little to benefit small business. The SSBCI has therefore given some small business leaders, according to the Philadelphia Inquirer, cause for hope.

States receiving SSBCI funds may apply them to existing successful small business programs, giving states the opportunity to apply solutions specific to that state’s needs. New Jersey has received approval for $33.8 million in SSBCI funding. The state’s treasury department will receive the funds in three parts over a two-year period. The New Jersey Economic Development Authority (EDA) will have authority to apply the funds through existing loan programs to make new loans and credit guarantees, and to engage in venture capital investments. It will focus on “underserved communities” throughout the state. Businesses applying for their first EDA loan may qualify for loans up to $500,000, while businesses with a good EDA track record may borrow up to $750,000.

The State of New York will receive $55.4 million in SSBCI funds. Empire State Development, a state agency promoting “business investment and growth,” will administer the funds through three programs. The Innovate NY Fund, which provides seed funding for innovative, entrepreneurial ventures, will receive $26 million. The Capital Access Program, which contributes matching funds to financial institutions’ loan loss reserve pools in order to encourage small business lending, will receive $19 million. The Bonding Guarantee Assistance Program, a new program helping minority- and women-owned businesses with surety bonds, gets $10 million.
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1340694_63317981_12152011.jpgThe U.S. Small Business Administration (SBA) announced last week that it will make economic injury disaster loans (EIDL’s) available to small businesses and other qualifying organizations in Bergen County, New Jersey. Because Bergen County is adjacent to several New York counties that were designated disaster areas, it is eligible for inclusion in the program. The disaster designation came as a result of damage caused in August and September by Hurricane Irene and Tropical Storm Lee. The SBA’s disaster declaration accompanied a similar declaration from the U.S. Secretary of Agriculture. Loans are available to small businesses, aquaculture businesses, and agriculture cooperatives, as well as many private nonprofits.

Bergen County, in northeast New Jersey, is directly across the Hudson River from New York City. It is New Jersey’s most populous county, with more than 900,000 residents. Hurricane Irene hit the area in August 2011, followed by Tropical Storm Lee a few weeks later, and caused more than $60 million in damage to north New Jersey municipalities. Local businesses and other private property sustained as much as $200 million in damage. Authorities have called it one of the worst natural disasters in the state’s history. President Obama declared all twenty-one New Jersey counties to be eligible for disaster relief, with the Federal Emergency Management Agency (FEMA) covering much of the cost of repairing infrastructure and government buildings. The SBA’s disaster declaration now makes federal assistance available to area businesses hurt by the storms.

EIDL’s are available to certain businesses and organizations in disaster areas designated by the SBA or the Department of Agriculture. The purpose of an EIDL is to help a business recover from economic damage resulting from a physical disaster such as a hurricane or earthquake, and to maintain a “reasonable working capital position.” EIDL’s are only available to businesses that, in the SBA’s determination, cannot get credit from private sources. Loans are available up to $2 million, with interests rates not to exceed four percent. For nonprofit organizations, the interest rate is three percent. The term of an EIDL cannot be longer than thirty years. The SBA will review a business’ total amount of debt and its ability to repay its debts in determining the amount and term of a loan.
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The New Jersey Assembly last week approved legislation, designated as S-3052 and A-4336, that would create a Small Business Loan Program. The bill passed both houses of the state legislature and went to Governor Chris Christie for his review on December 5, 2011. If the governor signs it, it could quickly have a positive effect on the New Jersey economy and offer new opportunities for New Jersey’s small businesses.

The bill was first introduced in the state senate on September 19, 2011 and referred to the Senate Economic Growth Committee. The Committee reported on it favorably on September 22, and it passed the state senate unanimously (39-0) on September 26. The Assembly received it on November 10 and referred it to the Assembly Commerce and Economic Development Committee. The bill was reported out of the Committee on November 21 and sent to the Assembly Appropriations Committee. That Committee reported favorably on it on December 1, and the Assembly passed it on a 52-23-3 vote on December 5.

If the bill is signed into law by the governor, it will instruct the state’s Economic Development Authority to initiate a program to provide low-interest loans to New Jersey small businesses that commit to meet certain goals. Businesses could use loan funds to acquire capital, train new employees, and pay salaries. To qualify for a loan, a business must make a commitment to raise its employment levels by 10 percent or more over a four-year period. Qualifying businesses must have their primary business operations, as well as a physical place of business, in the state of New Jersey. They must be owned and operated independently and not be the dominant business in their field. They must have fewer than 100 full-time employees, less than $10 million in equity financing, and less than $10 million in total financing. Loans up to $250,000 would be available at annual interest rates of two percent or less.

Authorities say that the program would support itself through loan repayments and interest, adding no additional costs to the state government. Senators who sponsored the bill tout its ability to stimulate economic growth by offering small businesses an incentive to acquire capital and add jobs. It would hopefully open the door to new financing opportunities for small businesses that have struggled in the difficult economic conditions of the past few years.
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