This week, Congress finally passed, and the President happily signed, a long-stalled bill designed to help small business – The Small Business Jobs Act of 2010. And not surprisingly, given the discordant dialogue that passes for politics these days, in short order there was a lot of loud chatter about the new law, ranging from, “It is government overreaching!” to “It doesn’t go nearly far enough.”
So what’s the real deal?
There are, generally speaking, two parts to the new law. The first part has to do with various changes to tax laws intended to spur business spending, economic growth, and job creation. It may do that and it may not. With tax law changes, I have found that it’s usually a matter of ‘time will tell.’
But the exciting part, the part that can help both your business and the economy as a whole, is the second part of the law: The creation of a new $30 billion fund designed to increase lending to small business.
It is much needed, long overdue, and should definitely help the economy. Here’s why:
Since the economic meltdown almost exactly two years ago, small businesses have had a very difficult time finding the money they need to effectively run their business, whether it be for a new startup, to fund ongoing operations, or to finance growth. Traditional sources – such as SBA loans, credit cards and other forms of so-called ‘easy credit,’ and yes, even home refinancing – all dried up.
So one main reason why the economy continues to be in the doldrums is that small businesses have been unable to borrow needed money, either because it was no longer available or because new lending rules made qualifying very difficult.
Enter the $30 billion Small Business Jobs Act fund. The fund is designated specifically for small, community banks to increase their SBA loans. This is good on two fronts:
- First, local banks and credit unions are the sorts of financial institutions most likely to lend to local small businesses. And given that 99% of all businesses in the U.S. are small businesses, this is significant.
- Second, SBA-backed loans make it easier for these banks to lend more. By guaranteeing the loans (The SBA is not a direct lender), the federal government takes a lot of the risk out of lending to small business. And as we are now in a very risk-averse era, this too means that more money should begin to flow. Even better: The financing will go, not just to long-established firms, but also to smaller, more entrepreneurial ventures.
No, government cannot create jobs; that is not its job. But government can create an environment where entrepreneurs can do their job and start businesses that create jobs. That looks to be the case here.
(For more information on business financing, you may want to check out my new book available early next year: Get Your Business Funded: Creative Methods for Getting the Money You Need. John Wiley & Sons, 2011.)