Monday, October 20th, saw the US Small Business Administration (SBA) make the following statement regarding its efforts to help small businesses through the current economic crisis:
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.
These are good, solid suggestions, especially in light of the reduction in available venture capital that is now being felt in the business community, but they are only a start. The worry is this: What happens if the economic troubles continue past the three month period suggested by Acting Administrator Baruah? Such suggestions, while they do offer people time to get their financial houses in order, are—like Senator Obama's proposed 90-day home foreclosure moratorium—usually little more than holding actions designed to put off the pain for a while. What we need to see during this three month period is a restructuring of debt that would put as many of these companies as can be saved on reasonably sound financial footing. This can and should be done without the government coming in with more bailouts, with each business responsible for its own debt.
Our credit crisis is based on distrust. Small business is demonstrably one of the most trustworthy institutions in America. Put it in a position to repay its debts, it will. Make demands that it cannot meet, then, like everyone else, it won't. We are Americans. Working together, we will get through this crisis. We always do.