Rich Balka is hungry for capital. The Trenton, NJ entrepreneur whose company makes specialty rubber products, says he needs the money to buy raw materials, pay his workers and weather the last stretch of the recession. Balka’s sales fell 30% last year, forcing him to lay off one-third of his staff and trim benefits for the remaining employees. Though he has never missed a payment on a loan, his bank is wary of his weak balance sheets and won’t lend him any more cash.
Long-awaited legislation before the U.S. Congress aims to spur lending to firms such as Balka’s. It would pay for higher loan guarantees, lower fees and other breaks for cash-strapped small businesses. But as the U.S. Senate adjourned for its summer recess this week, the bill remained stuck in a partisan stalemate. Small businesses desperate for government help in getting loans will have to wait at least until September before Congress moves on the issue.
“This bill would allow me the opportunity to find a new lender and infuse capital into the business,” said Balka, 48, owner of the Home Rubber Co. “What’s really disgusting is that partisan politics is preventing it from happening. It’s politics at the expense of the people.”
The next month or more may be angst-ridden for many business owners. Nationwide, 995 government-backed small business loans approved since last spring are now stuck in limbo until Congress acts. “The gridlock is fueling pessimism among owners, who may hold off on hiring if federal support dries up,” said John Sarno, president of the Employers Association of New Jersey. “Employers are really being whipsawed by this continual stalemate. If businesses don’t have the ability to invest and expand, there is going to be minimal job creation for sure.”
Small firms are struggling to secure loans from banks and other lenders – which are becoming increasing harder to obtain. “Something has to be done,” said Usha Villarreal, who had to pay $11,000 in extra borrowing fees after her government-guaranteed loan to expand her Mission Viejo, CA, assisted-living business got held up. “Our only other option was to wait in line, and there were 136 other applications ahead of us.”
Senate Democrats vowed last week to take up the measure again when lawmakers return to work next month. But they acknowledged it may be difficult to break an ongoing Republican filibuster of the bill, which is caught in partisan squabbling despite its broad popularity. “We will have to fight this out a step at a time,” said Senator Mary Landrieu (D, LA), the bill’s author.
For five weeks, progress on the bill had been stalled in the Senate, interrupted by other business and punctuated by bitter infighting. Sen. Landrieu held forth at all hours on the chamber floor, frequently pressing her case late into the night for the small businesses that both parties promote as an engine of the economic recovery. “If we don’t get small business started up again and focus on them and help them, this recession will never come to an end,” she said.
The package of small business proposals before the Senate includes money to allow the Small Business Administration (SBA) to guarantee up to 90% of loans made by banks and community lenders to small businesses. Most SBA loans are now available with guarantees of only 50%-75%, making them riskier and less attractive to lenders.
The SBA would be allowed to waive points and other fees and reduce down payments on many loans, and set up a fund to provide $30 billion to stimulate small business lending by community banks. Funds to support the SBA guarantees and fee reductions ran out in May, and lending to small businesses has dropped precipitously since.
The bill was passed by the U.S. House, but it ran into trouble in the Senate when members from both parties began attaching amendments to support their favored causes.
Bankers say they are also waiting for Congress to act. Regional banks, in particular, are eager to begin drawing on $30 billion in federal bailout money that President Obama has asked Congress to make available to community lenders. Lenders that use the money to make loans to small businesses will get a discount on the interest rate that they must pay to the federal government for borrowing the money.
“The fund would provide community banks with the capital they need to safely make loans in an environment where money is tight,” said Steve Verdier, chief lobbyist with the Independent Community Bankers of America. “It would really provide a terrific incentive for community banks to provide those loans.”
*This story contains material from The Los Angeles Times. ©2010 NJ.com. All rights reserved.