IBJNews

Obama's stimulus aims to boost access to small-biz loans

Back to TopCommentsE-mailPrintBookmark and Share
Small Business Trends

No incentive can make a bad deal bankable. But President Obama’s stimulus measures are spurring some promising small businesses to begin borrowing again, despite the recession.

National politics will help determine whether the budding trend accelerates or stalls.

“The president has announced a very exciting series of initiatives. That’s the good news,” said attorney Frank Swain, a partner in Baker and Daniels LLP’s Washington, D.C., office. “The asterisk to bear in mind is, nearly everything the president has proposed will require legislation.”
smallbizObama has a variety of incentives on the table designed to encourage entrepreneurship. For starters, he wants to move $30 billion from the Troubled Asset Relief Program, or TARP, over to community banks that will put it to work in small businesses.

The president also aims to give the Small Business Administration authority to refinance commercial real estate loans for owner-occupied property. Obama has proposed raising the caps on a variety of SBA loans, and he wants Congress to approve a $5,000 tax credit for every net new employee a small business hires.

But at the moment, it’s unclear whether Obama will even be able to preserve the small-business banking measures he’s already added to the books. Thanks to the American Recovery and Reinvestment Act, the SBA is attempting to rekindle borrowing activity by increasing its loan guarantees up to 90 percent and waiving fees.

The SBA’s current loan incentives are scheduled to expire at the end of the month without congressional renewal. Some local entrepreneurs are taking advantage of federal stimulus incentives while they last.  

small biz An SBA-backed loan has helped fund the growth of Alivio Medical Center on the east side. (IBJ Photo/ Perry Reichanadter)

Alivio Medical Center, at 21st Street and Shadeland Avenue, is exactly the type of small business President Obama is attempting to assist. Founded in 2002, it has four full-time physicians, three specialists and a staff of 30. It serves 25,000 patients, primarily Hispanic people for whom Spanish is their first language.

The business has expanded so quickly that it’s twice outgrown facilities. Last fall, Alivio borrowed $705,000 in SBA-backed money from Fifth Third Bank to buy its current building, a former pain clinic.

Dr. Alfredo Lopez-Yunez, 42, a Colombian native who’s Alivio’s owner and director, said he probably could have secured a loan without the SBA’s assistance. But because of its involvement, Alivio used funds that would have gone for fees to instead open a dental clinic and an ophthalmology clinic.

“I wouldn’t say it was a no-brainer, but it was close to that, it was so good,” he said.  

small biz Geoffrey Wood puts together an order to be shipped from Grassroots Musical Distributor LLC. The McCordsville firm received an $80,000 SBA-backed loan. (IBJ Photo/ Perry Reichanadter)

McCordsville-based Grassroots LLC is another beneficiary of the SBA’s current incentives. Owner Todd Stadler distributes a variety of musical instruments from a tiny 3,000-square-foot warehouse, “but we use every bit of that room,” he said. He launched the business in October with the help of an $80,000 loan from Star Financial Bank, backed by the SBA. His motive was a common one for entrepreneurs: Stadler, 33, simply wanted to work for himself.

Grassroots has four full-time employees and two part-timers. In just a few months, it has attracted 250 customers and aspires to 2010 sales of $1 million, with a profit margin of 25 percent or better.

“I’ve worked hard for others. I knew I’d succeed if I did that for myself,” he said. “My mind-set was, I’ll do whatever I have to to make this work.”

The SBA’s changes were rooted in necessity. In 2008, wary entrepreneurs battened down their hatches. The international credit crunch trickled down locally into a 35-percent slide in both the quantity and size of SBA-backed bank loans.

The result was a partial, concentrated revival. The SBA’s Indiana District Office reports that its gross dollar totals for loans made during the last 12 months reached 86 percent of their pre-recession level. But the SBA underwrote only about half as many loans as before the downturn.

Mark Schroeder, CEO of Jasper-based German American Bancorp Inc., wants to see the SBA’s current loan incentives extended.

Just before Christmas, Schroeder was one of 12 community bankers from around the country invited to meet personally with Obama. He told the president that German American was fortunate to be well-capitalized and willing to lend. But because of the recession, he told Obama, businesses simply aren’t borrowing. For the last two years, most have concentrated on reducing their inventories and tightening their receivables, not taking on debt for expansion.

As businesses shrink, Schroeder noted, they have less collateral to offer as loan security. That increases their default risk. Until recently, the problem has been hidden by the lack of loan demand. But it will become pronounced as they begin growing, and seek new credit for working capital.

Schroeder believes the SBA’s increased guarantees ought to be extended through 2011, and perhaps beyond.

“That was my point to the president,” he said. “If you pull that SBA credit-enhancement support off the table too soon, just when this economy is ready to come back up and back out, that’s when you’re going to see the credit crunch.”

Obama’s new entrepreneurship proposals also include eliminating capital-gains taxes on investments in small businesses and accelerating tax-depreciation schedules for their equipment purchases.

Swain, the Washington, D.C., attorney, said local entrepreneurs should keep their lenders’ phone numbers handy to track the changing landscape for small-business incentives.

“Chances are that many, if not all, the changes will be made pretty quickly,” said Swain, who served as the SBA’s chief counsel for advocacy before joining Baker and Daniels. “If somebody desperately needs help today, they have to deal with current program rules. But in a month, the rules could be changed.”•

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. A couple of issues need some clarification especially since my name was on the list. I am not sure how this information was obtained and from where. For me, the amount was incorrect to begin with and the money does not come to me personally. I am guessing that the names listed are the Principal Investigators (individual responsible for the conduct of the trail) for the different pharmaceutical trials and not the entity which receives the checks. In my case, I participate in Phase II and Phase III trials which are required for new drug development. Your article should differentiate the amount of money received for consulting, for speaking fees, and for conduct of a clinical trial for new drug development. The lumping of all of these categories may give the reader a false impression of physicians just trying to get rich. The Sunshine Law may help to differentiate these categories in the future. The public should be aware that the Clinical Trial Industry could be a real economic driver for Indiana since these revenues supports jobs and new job creation. Nationally, this account for 10-20 billion which our State is missing out on to a large degree. Yes, new drug and technology development has gotten most of the attention (e.g. CTSI, BioCrossroads, etc.) However, serious money is being left on the table by not participating in the clinical trials to get those new drugs and medical devices on the market!!!! I guess that this is not sexy enough for academia.

  2. The address given for the Goldfish Swim Club is the Ace Hardware, is it closing?

  3. Out of state management and ownership. If Kite controlled it, everything would be leased. Of course, due to the roundabout, there is limited access to the south side of 116th now also. Just have to go down to the light.

  4. Hey smudge, You're opposed to arresting people for minor crimes? Sounds great! We should only focus on murders and such, right? Let's stand around and wait until someone shoots someone before we act. Whatever we do, we should never question anyone, frisk anyone, or arrest anyone unless they are actively engaged in shooting or stabbing. Very sound!

  5. You guys are being really rude to gays in the comments. (Not all of you, I presume). You need to stop it. Gays have just as much of a right to marry as straight people do. It's not fair how you guys are denying them equal rights. They're acting more human than you'll ever be. We obviously haven't matured since the bible was last updated. Hate the sin, not the sinner. You've all committed a sin at least once in your life. You've lied, you've stolen, etc. (Those are just possibilities). We should have a planet for people that support gay rights and a planet for people that don't. Then, gay people could get married without you bigots interfering with their love life. How would you feel if straights couldn't get married? How would you feel if teenagers were afraid to come out to their parents as straight? If straight people got hate everywhere they went? If straight people were afraid to go out in public, because they feared being judged? It's never going to happen at the rate society is going. You haven't seen the side of me where I act obscene. You're glad my inner demon hasn't been released. I would, but oh no, my comment would be removed because of my very strong emotions about this subject. I love gays, and love how they show their affection for each other. I just ADORE how a state is going to give same-sex couples a marriage license, then changes their mind. (I was obviously being sarcastic there). I just LOVE how society thinks gays are an abomination to our society. You're caring about marriage between two men or two women. That's a small thing. Just grow up, and let them marry. Let them live their lives. You can't make them change their sexuality. You can't make them change their lifestyle. In my opinion, gays are more than welcome to marry. Please, grow up and realize that people should be allowed to marry, even if it's same-sex marriage. You guys are saying that "the bible said gay marriage is wrong." Well, guess what else is wrong? Read Matthew:7 and you'll find out. (I am in no way breaking that. I am saying a fact). I'm stating that gays have just as much of a right to marry as straights do. (:

ADVERTISEMENT