Burien, Wash.--Mark Headley knows the impact a recession can have: He said he was laid off in 1991 from Beetlesmith’s Valley Auto Service, a comprehensive repair shop located in Renton, Wash., due to lack of work.
Now the owner of Mark’s Expert Auto Service Inc., Headley said a recession is again threatening his livelihood.
“Business has been on and off,” said Headley, whose four-bay shop is just south of Seattle. “Last month was really bad.”
Headley’s story is one of millions as small-business owners across the country grapple with the rising cost of doing business and a downturn in consumer confidence, a critical factor for many retailers.
But help may be on the way.
President Obama signed into law the $82 billion American Recovery and Reinvestment Act of 2009 on Feb 17. The largest bill of its kind in history, the legislation was designed to jumpstart the economy by creating jobs.
The act includes measures to modernize infrastructure, enhance energy independence, expand educational opportunities, preserve and improve affordable health care, and provide tax relief.
The Small Business Administration (SBA) is responsible for shoring up America’s small-business owners using a $730 million slice of the Recovery Act pie.
“I think there’s a lot of distrust among business owners right now,” said Nancy Porzio, director of the Seattle District Office of the SBA. Porzio is one of 70 district directors across the country who are responsible for helping implement the legislation at a state level.
“We’ve been talking to a lot of people about the current climate and their perception of how (the recession) is being handled. I didn’t think it was as bad as it is.”
Porzio said the SBA will use the money to make it easier and less expensive for small businesses to get loans, give lenders new incentives to make more small business loans and help unfreeze the nonfinancial markets to increase the amount of money available to creditors.
The broader bill will provide tax incentives and financing to help the nation’s businesses create jobs. While the final details are not yet in place, Porzio said the SBA has devised seven broad strategies.
First, the SBA will raise its loan guarantee from the current levels to as much as 90 percent for some loans, up from 85 percent on loans up to $150,000, and up to 75 percent on loans greater than $150,000. It’s a move Porzio said will make it easier for business owners to increase their capital.
A loan program about to be launched will provide deferred-payment loans of up to $35,000 to viable small businesses that need the money to make payments on an existing, qualifying loan for up to six months. These “business stabilization” loans will be 100 percent guaranteed by SBA and don’t have to be repaid for one year.
The money will also be used to expand the administration’s Microloan program, which provides small loans paired with technical assistance to start-up, newly established or growing small businesses.
According to the SBA, Microloans reach low-income individuals, women, and minorities in both rural and urban areas, business owners who might otherwise be unable to get credit in the tightening market.
In addition to providing new lines of income, the legislation allows SBA to offer refinancing options to business owners with an existing loan, promoting expansion and job creation.
In that vein, the federal government has authorized the administration to guarantee certain loans and sell them to investors, thus providing liquidity and sparking fresh lending. The bill also modifies an existing investment program, increasing the amount of money the SBA can invest in any one small business.
Finally, the act raises the maximum contract amount that can be covered by an SBA-guaranteed surety bond and expands the programs. Small businesses need surety bonds in order to bid on and obtain many federal and other contracts. SBA guarantees surety bonds to small businesses that private surety companies would not otherwise be able to extend, thus helping cement newly created jobs.
Headley said he built his business little by little with his own money and has never had a business loan. While he recognizes that he might be able to hire another mechanic–he currently employs just one–he said he doubts that he will no matter how many breaks this legislation offers.
“When it comes right down to it, I’m not sure I can count on having enough work over time to keep everyone going,” he said. “There’s a lot of competition out there.”
Headley said he advises other business owners in the automotive repair sector to get used to tightening their belts and maintaining their secret weapon: customer service.
“An independent shop needs to understand why customers aren’t going to the dealership,” he said. “We’ve strayed from the old-fashioned business model. Don’t buy more than you can afford, even if you have to start with less equipment and really communicate with the customer.”
Headley said he is still skeptical that any of the measures will help him with the day-to-day operations of his business.
“I think a lot of people’s eyes are on the stimulus plan,” he said. “There have been some positive results, but I don’t think it’s done anything yet for most business owners. I guess we’ll see.”
Follow the money:
The American Recovery and Reinvestment Act provides $730 million to the Small Business Administration. Below is a breakdown of how the money will be spent:
- More than half of the money, $375 million, will be spent on temporarily eliminating fees on SBA-backed loans and raising the administration’s guarantee percentage on some loans to 90 percent, making it easier for banks to approve new loans. The elimination of fees, announced on March 16, is expected to remain in effect until Dec. 31.
- Some 35 percent, or $255 million, of the total allocation will be spent on a new loan program to help small-business owners continue to make their payments on time.
- Four percent, roughly $30 million, will be spent on the expansion of the administration’s Microloan program, enough to finance up to $50 million in new lending and $24 million in technical assistance grants.
- Some $25 million will go toward hiring additional staff members.
- Another $20 million, 3 percent of the pie, will be spent on technology systems that the administration hopes will streamline the SBA’s processes.
- Two percent, or $15 million, will be spent on the expansion of the SBA’s Surety Bond Guarantee program.
- Finally, $10 million has been allocated for the Office of Inspector General.
