October 2009 Franchising World
By Jason Straczewski
When the International Franchise Association unveiled its “Five Point Plan for Economic Recovery” in January, several aspects were eventually included in the stimulus legislation, the American Recovery and Reinvestment Act. After reviewing the final legislation, IFA determined several additional steps were needed. Throughout the year, the association has worked hard to educate lawmakers about the unique advantages franchising provides to help our economy recover and grow sustainable jobs better and faster. At every opportunity IFA has delivered this message along with key policy steps that must be taken to help franchise businesses succeed. These policy recommendations include:
• Increase U.S. Small Business Administration 7(a) loan size to $4 or $5 million to facilitate financing for medium size borrowers.
• Expedite SBA loan application process and make it less cumbersome to make capital more readily available.
• Eliminate (temporarily) or sharply reduce SBA lender fees to increase the incentive for banks to make loans.
• Allow market-based loan pricing so that SBA loan caps do not discourage banks from making loans.
• Promote sensible audit standards so that lenders will not fear losing their SBA guarantee after the loan is issued.
In August, U.S. Sen. Olympia Snowe (R-Maine), ranking member on the Senate Small Business and Entrepreneurship Committee introduced S. 1615, the “Next Step for Main Street Credit Availability Act” of 2009. Her legislation would increase the SBA 7(a) and 504 loan maximum loan size to $5 million. It would also increase the SBA micro loan program maximum limit to $50,000. It would make it easier for those with existing SBA loans to refinance the remaining balance and, finally, it would establish an online clearing-house which individuals can utilize to compare rates from lenders offering loans with an SBA guarantee. IFA strongly supports S. 1615 and thanks Snowe for her continued leadership on behalf of franchised businesses in the United States.
In Their Own Words…
Sen. Olympia Snowe’s Senate Floor Statement:
“Mr. President, the state of small business lending in the United States is still dire, as was shown during CIT’s recent close brush with bankruptcy. One area of lending which has historically helped small firms has been Small Business Administration backed lending, but while the SBA traditionally guarantees $20 billion in loans annually, before the passage of the stimulus, new lending this year was on track to fall below $10 billion. In fact, in the first quarter of fiscal year 2009, the number of SBA 7(a) loans dropped by 57 percent when compared with the first quarter of fiscal year 2008.
Last year, to help address the frozen credit market and the drop in SBA lending I introduced the 10 Steps for a Main Street Economic Recovery Act. Many of the provisions in 10 Steps were included in the American Recovery and Reinvestment Act and several have already been credited with helping to increase SBA volume. These include fee reductions for 7(a) and 504 loans and allowing for the refinancing of 504 loans. To ensure that SBA lending remains a critical source of capital for small businesses, we must continue to bolster this program and help it to evolve and grow.
In order to maintain this momentum we must take steps to further reform and improve SBA-backed lending. The legislation I am introducing, the Next Step, builds on the 10 Steps for a Main Street Economic Recovery Act and makes the SBA’s lending programs more vital and responsive to the needs of today’s small business borrower.
The Next Step includes provisions that would allow borrowers to take out larger 7(a) and 504 loans up to $5 million. This bill would help satisfy the capital needs of small businesses, looking to start or expand their operations. The bill would also allow for the refinancing of 7(a) loans. Finally, SBA borrowers must have the ability to shop and compare SBA loan rates online. My legislation would establish an online platform through the SBA that would allow borrowers to compare SBA loan rates and make an informed choice, giving borrowers a chance to save time and money.
These targeted reforms included in the Next Step for Main Street Credit Availability Act of 2009 will help bring SBA lending into the future, make the SBA’s lending programs competitive with traditional small businesses’ borrowing, and help to increase SBA lending volume.
I urge my colleagues to support this critical legislation to help improve small business lending.”
Jason Straczewski is director of government relations of the International Franchise Association. He can be reached at 202-662-0797 or jstraczewski@franchise.org .