President Barack Obama announced a new policy that would ease restrictions on loans to small businesses and offer loans with more lenient terms to community banks as an added cushion. The program, presided over by the Federal Small Business Administration (SBA), has given a ray of hope to small-business owners beleaguered by a year of scarce capital. Bankers in the Chinese community have rejoiced at the news, and Chinese business owners are eager to apply for relief.
Thomas Sung, president of the East Coast-based Abacus Federal Savings Bank, said: "Ever since the financial crisis, banks have almost frozen their lending to small businesses. Now, the government is guaranteeing loans and offering more loans to banks. This is an important first step toward thawing the financial climate." Sung plans to order all banks under Abacus' flag to promote the SBA's new program at the first opportunity, and help breathe new life into small Chinese business enterprises.
Sung, who is an advisor to the Federal Reserve Bank of New York, says that the government's new program is extremely important for community banks, because up until now it is been very difficult for community banks to obtain relief funds. Without such funding, banks have been unable to increase the flow of cash, and this has prevented countless small businesses from obtaining capital.
Community bankers are diligently reading up on the details of the new policy. Some bankers say that, while it is a good thing that the SBA is guaranteeing loans and encouraging banks to lend more, they should still maintain rigorous inspection procedures, lest small businesses experience a "subprime lending crisis." At present, small entrepreneurs are able to obtain ordinary bank financing, but the risk of these loans must be borne by the banks themselves, so inspection procedures are very strict. When small-business owners take out loans backed by the SBA, the banks will be able to get reimbursed by the SBA in the event of bankruptcy. The rate of interest for SBA loans is slightly higher on average than for ordinary loans.
Wang Guolan, market development vice president for the West Coast-based East-West Bank, says that although Chinese business owners generally operate within their means and within their own small circles, the financial crisis has still had a large impact upon them. She believes that Chinese entrepreneurs should seize the moment and take advantage of this opportunity for relief through the SBA. She also stressed that SBA programs, such as loan backing, will not continue indefinitely – as soon as funding dries up, they will be gone – so Chinese business owners who meet qualifications should apply as soon as possible.
Wang says that small-business owners can take advantage of several different SBA loan programs, including 7a, which provides loan-backing up to $2 million, and 504, which provides backing up to $4 million. Under the new policy, SBA loan-backing has increased from 75 percent to 90 percent, and the 3 percent processing fee has been removed. These changes should considerably lighten the load for small businesses.
Members of the Chinese banking community urge small business owners to seize the opportunity and apply for relief. The program also includes many measures to lighten the tax burden on small businesses.
