President Supports IFA Recommendation to Increase SBA Loan Limits

December 2009 Franchising World

IFA urges Congress to take the next step and pass the legislation.

On Oct. 21, the International Franchise Association welcomed President Obama’s support to increase U.S. Small Business Administration loan limits from $2 million to $5 million, which, if passed, would pave the way for more franchise businesses to help create new jobs and set the country on the road to economic recovery.

“We thank President Obama for his support to enhance the SBA’s loan program,” said IFA President and CEO Matthew Shay. “We urge Congress to take the next step and pass legislation to increase the loan limits and make other important changes to the SBA loan program.”

Shay and several IFA-member franchisees joined President Obama at a Washington, D.C.-area business where he announced his support. The franchisees attending the event included: Vinay Patel, JAI Hotels; Mariana Huberman, The UPS Store #5259; Christopher Scott Schmitz, Meineke Car Care Centers; and Maria Icaza and Andy Cabral, Dunkin’ Donuts. The president said he supported increasing the SBA 7 (a) loan size from $2 million to $5 million to help provide medium-sized companies more sources of credit to expand and grow their businesses.

“Fifteen percent of all small business franchisees in the United States own between two and five units, which is the fastest growing segment of our industry,” Shay explained. “There are over 400 different franchise brands in the United States that have an average initial investment requirement of $750,000 to $2 million per unit. These franchised-small businesses reach the SBA’s current loan limit of $2 million by the time they want to build the second or third store. By increasing the loan limit to $5 million, at an annual growth rate of 5 percent, these businesses could create 450,000 to 650,000 new direct and indirect jobs within the next 12 to 18 months.”

In January, IFA released an Economic Recovery Plan to help members weather the recession. The plan included recommendations for the SBA loan programs to increase access to capital for businesses. Besides recommending the increase in the SBA 7 (a) loan program to $5 million, IFA urged the government to expedite the SBA loan application process and make it less cumbersome; 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; and promote sensible audit standards so that lenders will not fear losing their SBA guarantee after the loan is issued.

Throughout the year, IFA and its members have presented recommendations to the administration and to Congress through testimony at multiple congressional hearings and meetings with Treasury, SBA and Federal Reserve officials. Capital access was a key topic during IFA’s recent Public Affairs Conference which drew more than 450 franchisebusiness owners to Washington, D.C. to urge Congress to take steps to increase access to capital.

“We thank President Obama for his actions and we thank the thousands of IFA members who made their voices heard this year through letters, meetings and calls with policymakers,” Shay said. “Making SBA loan programs work better for entrepreneurs seeking capital to open, acquire or expand a business will allow the economy to recover faster and provide the necessary bridge to a functioning commercial lending market once the recovery is complete.”

IFA Testifies Before House Small Business Committee
International Franchise Association President and CEO Matthew Shay testified in mid-October before the U.S. House Small Business Committee.

Businesses normally can find financing from a number of sources the association executive stated, making the SBA loan program a lender of last resort for those who have trouble finding credit from traditional sources. However, during the current recession, commercial lenders have curbed their lending making the SBA an important lending source for all businesses. But many are not participating in SBA lending programs because either they lack expertise or they find the SBA’s requirements too burdensome, Shay noted.

Shay added that the stimulus bill passed earlier this year made some changes to the SBA program, such as temporarily increasing the loan guarantee and suspending loan fees for borrowers. “These were crucial first steps and we urge Congress to ensure these temporary provisions are available through 2010,” Shay said. “Taking additional steps to increase access to capital for franchise businesses will create jobs and lead us to a faster recovery.”

The hearing can be viewed on YouTube by searching key words “Matthew Shay 10.14.09.”