Small Business: SBA changes promise more jobs, better interest rates

Sam Jones is the Region VII SBA Administrator.

Sometimes the only thing standing on the line between progress and stagnation are the details.

Recently, the U.S. Small Business Administration has engaged in fine-tuning the details of a loan program. The changes promise to help us provide better service, create more jobs and offer better interest rates to borrowers. Now, that's progress.

Some of you may have heard of Certified Development Companies, which offer the SBA's 504 Loan Program. The 504 Program, created in 1986, provides long-term, fixed-rate, favorable-rate financing on fixed assets to small businesses. The loan program meshes community financing with SBA backing and was created by SBA and Congress as a means to foster economic development and create and preserve jobs, with a job creation requirement tied to the financing.

But demand for the loans under the 504 Program has not reached the maximum SBA budgetary authority for many years, even though the program registered a record $3.16 billion in loans last fiscal year. Because the loans are financed by the sale of debentures, the SBA could have provided financing for $4.5 billion in loans last fiscal year.

SBA studied the 504 Program's structure to determine how to take advantage of it more fully and Nov. 6 published new rules in the Federal Register. The modifications allow for more flexible member requirements, provide the CDCs greater authority to approve more nonstandard projects, allow expansions in their areas of coverage and eliminate rules requiring a minimum number of loans.

Now each CDC has the go-ahead to serve an entire state if it believes it can and not be restricted to certain counties within the state that were not served by another CDC. CDCs now will compete with each other for business. In addition, some CDCs have met certain SBA criteria to allow them to serve bi-state areas.

Rural areas, like Springfield and vicinity, get a boost because the former requirement for companies to create or retain one job per $50,000 of 504 Program loan funding can be reduced for good cause to one job per $65,000 of loan funding in state-designated rural jobs zones.

Other areas receiving the same consideration are urban jobs or enterprise zones, empowerment zones and enterprise communities, areas listed by the Department of Labor as labor surplus areas, and the states of Hawaii and Alaska. Basically, the rule now recognizes the increased cost to the borrower of building or renovating fixed-asset structures in these areas and encourages borrowers to locate there anyway, while providing an additional incentive of keeping wages commensurate with other areas of the country where building costs might be lower.

All in all, SBA Administrator Hector V. Barreto believes the new rules will make the 504 Program more responsive to changes in market conditions and allow market-driven forces to determine the availability of the program services, and give borrowers greater opportunity to negotiate the best financing package.

Further, it is hoped that the changes will encourage fixed-asset portions of borrower financing use the SBA 504 Program rather than its major 7(a) Loan Guarantee Program, making more of the 7 (a) funding available to smaller, start-up and expansion-sized businesses.