Driving Nowhere
Last week, the Small Business Administration permanently changed its 504 loan program so that businesses can refinance to expand or buy equipment. In the past, the 504 program provided new loans to buy real estate, upgrade machinery and make other capital improvements. Now the program provides for refinancing of any fixed-asset loan as long as the amount is 50% or less than the total cost of expansion. The redesign is intended to help small businesses restructure their debt under better terms to improve their cash flow positions. However, the small business must also create or retain a job for every $65,000 guaranteed by the SBA, an increase from the previous requirement of $50,000. Unfortunately, this modification will not help those of us whose small businesses were prudent and refrained from taking on debt. This is only helpful for those who need to refinance. Moreover, it is a dicey proposition for any small business to take on additional debt, or guarantee employment at this time, given the uncertainty about the economy. The SBA expects to announce next week a new loan program to assist car dealers in purchasing inventory. It just seems that the SBA is out of synch with what is going on in the economy at the moment. For service businesses, that constitute the bulk of employment, we don’t typically have major capital investments in equipment, but we certainly have working capital and cash flow pressures. They don’t seem to have anything for us.