This afternoon, President Obama announced a set of new initiatives on small business lending. According to the fact sheet, the Treasury Department will make additional funds from the Financial Stability Plan available to community banks and Community Development Financial Institutions (CDFIs) for small business lending. The Small Business Administration will raise the loan limit in the 7(a) loan program from the current $2 million to $5 million, raise the loan limit for 504 project loans from the current $2 million to $5 million for standard borrowers and from the current $4 million to $5.5 million for manufacturers, and increase the limit on the microloan program from the current $35,000 to $50,000. The purpose of these changes is to make more credit available to small businesses that were too big for SBA programs but were having trouble getting bank loans.
It should be noted that recently the SBA rewrote its standard operating procedures to explicitly allow 7(a) loans to be used to purchase intangibles. Before there were severe limitations on the purchase of intangibles — which were lumped into the amorphous (and risky) category of “goodwill.” This is a change we called for earlier this year when the President announced a previous SBA loan program (see earlier posting).
However, as we noted back then (and noted in our earlier report, Intangible Asset Monetization: The Promise and the Reality and paper, “Building a capital market for intangibles,”), there are other changes that need to be made. It is still unclear whether intangible assets can be used as collateral for such loans. Working with its commercial lenders, SBA should develop standards for use of intangible assets as collateral, similar to existing SBA underwriting standards.
The third element of the President’s announcement today was that he is calling for a small business credit conference, to be hosted by Treasury Secretary Geithner and SBA Administrator Karen Mills. The purpose of the conference is to “establish further steps the government can take to help small businesses access the credit that is so vital to their growth, and to economic prosperity in this country.” Helping small businesses unlock their financial resources latent in their intangible assets would be a perfect topic for this conference.