A starting point for the development of a national loan program for small businesses
 
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A PLAN

INTRODUCTION

     To follow is a rough framework of a plan (not bail out) offered as the starting point for the development of a national loan program for the small businesses of these United States. It is merely the framework upon which others, more educated and knowledgeable then I, can build upon to provide the assistance necessary to grow America’s economy. It is simply a plan to salvage what has been called the “bail out bill” and use the money on Main Street not Wall Street.

HISTORICAL COMMENT

     As all know America finds itself in the pit of an economic crisis, the President, his cabinet, Congress and the President –Elect have all sought to find means of resolution for the dilemma we find ourselves in as a nation. The United States Treasury has delivered unprecedented sums of money to the richest of the rich institutions, that at one time were thought as the pillars of our society only to find those pillars infiltrated and rotted by greed and mismanagement. And yet they have forgotten the foundation of this nation, the small businessperson and the entrepreneurial spirit from which all business have grown. It is time to rebuild these United States of America, from the ground up and thereby grow and strengthen our economy for all Americans.

A PLAN

     This plan has two aspects, loans and tax savings. The loans shall be provided to “small businesses” as defined by the Small Business Administration. The tax savings would be applicable to all businesses.

    The Loan Programs

  1. The first program shall provide loans to small businesses for the purchase of durable goods (equipment, vehicles, computers, etc.), said loans not to exceed fifty thousand dollars ($50,000.00). The terms would be a six (6) year note at two percent (2%) interest, secured with a personal guarantee by the business owner(s) and conventional security agreements (i.e. UCC lien and/or lien on the title of the purchased asset).

    The ability to show repayment of the loan thru business revenues, while to be considered, is not to be the primary basis for making these loans. Past revenue history is to be given strong consideration. There is a need to recognize that while some in government have only in recent days admitted that there is a recession, the small businessperson has been operating in a recession environment for one to two years. Many of these businesses’ financial statements show depressed earnings: therefore, these loans must be made on the strength of their personal guarantees.

  2. The second program shall provide loans to small businesses for the purchase of durable goods and/or building projects (new or remodel). Lending limits shall be up to two hundred fifty thousand dollars ($250,000.00). Loan terms would be a seven (7) year note, amortized over a twenty-five (25) years with an annual interest rate of five (5) percent.

    Assets of the small business and small business owners, with personal guarantees, would secure the loan. For purpose of valuation of assets the small business owner may use appraisal of assets previously done at the request of lending institutions (by qualified commercial appraisers) in the past three (3) years or tax assessments done in 2007 or thereafter. The actual value of assets to be purchased by the loan, use life and value of improvements (if a building loan) shall also be taken into consideration. These loans can be secured by traditional commercial mortgages including second or third mortgages.

    Repayment of the loan shall commence within twelve (12) months of the signing of the loan application or final distribution of the loan funds, whichever comes first.

    The ability to show repayment of the loan thru business revenues, while to be considered, is not to be the primary basis for making these loans. Past revenue history is to be given strong consideration. There is a need to recognize that while some in government have only in recent days admitted that there is a recession, the small businessperson has been operating in a recession environment for one to two years. Many of these businesses’ financial statements show depressed earnings and the loans must be made on the strength of their personal guarantees.

  3. The third loan program shall be for major capital improvements and major durable goods purchases. The loans amount shall be two hundred fifty thousand dollars ($250,000.00) to five million dollars ($5,000,000.00). Loan terms would be a ten (10) year note, amortized over a twenty-five (25) years with an annual interest rate of five (5) percent. The assets of the small business and the small business owner(s), with personal guarantees, would secure the notes. For those loans intended for the construction of buildings and/or the improvements to buildings, a current appraisal would need to be obtained. Loan amount to value of assets securing the loan cannot exceed one hundred percent (100%). These loans can be secured by traditional commercial mortgages including second or third mortgages. The ability to show repayment of the loan thru business revenues shall be considered.

Implementation

  1. The loan applications would be processed thru the small community banks and local credit unions, the definition of what qualifies as “small community banks” and “local credit unions” needs to be strictly defined so as to eliminate any involvement by the regional banks and mega banks. The small community banks and local credit unions have loan officers and personnel to assist the small business owner in the preparation of the loan application and loan committees to review the same pursuant to a protocol to be established by Congress and the President. The loan process and application form must be simple and cautiously expeditious. Each participating bank will receive a loan origination fee for its assistance. No funds, however, will ever be deposited with these institutions.

  2. Funding shall be done by depositing those funds allocated for the implementation of this plan with the Small Business Administration (SBA). Standard SBA loan processing methods shall not be used! The sole purpose of the SBA is to hold funds and disperse the funds upon approval of an application. Upon approval of a loan application the SBA shall wire the loan funds including processing fees to a local title company who shall act as escrow agent. Said funds shall be released per protocol to be established. It is the intent that the funds never become accessible to the small businesses or the banks/credit unions, rather be directly paid to the vendors and providers of the services that the funds are intended to be used.

TAX INCENTIVES

     The tax incentives have temporary amendments to the tax code, they include depreciation of fixed assets and building depreciation.

Depreciation of Fixes Assets (Equipment, Vehicles, Computers, etc)

     Businesses who acquire fixed depreciable assets in 2009 shall have the following options:

  1. If an asset meets standards set for energy efficient or clean energy solutions assets the business may depreciate one hundred percent (100%) of the asset value for the year 2009 and receive a twenty percent (20%) tax credit of the asset value; or
  2. The business may elect a first year depreciation of fifty percent (50%) of the asset value and the remaining asset value shall be depreciated under the standard depreciation schedule; or
  3. The business may elect a three (3) year depreciation with a ten percent (10%) tax credit of the asset value, with exception of computers and similar equipment which shall be one (1) year (with a corresponding ten percent reduction in the depreciable asset basis).
  4. The business may elect to choose the Section 179 one hundred percent (100%) write off under the current code and receive a ten percent (10%) tax credit of the asset value.

Depreciation of Buildings

     The number of years over which commercial buildings and structural improvements to buildings, whose construction begins in 2009, shall be fifteen (15) years instead of thirty-nine (39) years. Commercial land improvements that begin in 2009 shall be seven (7) years instead of fifteen (15).

Additional Neeeded Temporary Tax Code Changes

  1. Eliminate the net income limitation for Section 179 deductions for 2009 and 2010.
  2. Increase the net Operating Loss carry back period to five (5) years (currently 2 years, historically 3 years) through 2010. By doing this you will allow for actual cash refunds for asset acquisitions in 2009 and 2010.
  3. Eliminate the luxury vehicle depreciation limits for one (1) year.

CONCLUSION

     Historically business derived its funding in the same way day after day, the federal government would lend money to the larger financial institutions, who would lend to the regional institutions who would lend it to the smaller banks and credit unions, who would lend it to the small businesses, who would then put the money to work in the economy, thereby creating jobs for Americans. The recent events of providing hundreds of billions of dollars to these larger financial institutions have shown that the system is broken. It is like the person who has a heart attack and stops breathing. We can wait to see if they will start breathing, but if we wait too long the circumstances may be dire, or we can administer the necessary medication and hit them with the paddles. The plan is the medication and the jump-start to get America breathing. Once life comes back to the economy reassess where we are at and how we got there, and then implement those measures necessary to rebuild a stronger and safer United States of America.

     My businesses are in a rural farming community. My neighbors and friends in farming will tell you that you fertilize the plant from the roots up, not the top down. Put this money on Main Street not Wall Street and our economy will recover and grow. If you continue to shovel billions of dollars onto the counting tables of the Wall Street giants not even a few pennies will fall to the floor for America’s small businesses. Wall street has always been a long-term investment opportunity and not designed for quick response or gain, just ask the Main Street financial planners that many of us rely upon for our retirement.

     I am sure that not one dollar already given out carried with it a personal guarantee by the CEOs and Board Members of the companies that received this money. The personal assets of the small business owner, their business assets and the homes they and their children sleep in each night will personally guarantee each dollar loaned under the plan. I place my trust in each of them and the people who work in these businesses. May God Bless America.
 

Sincerely,

Carl R. Edenhofer, Jr.
Small Business Owner

Contact your representatives in Congress today and send them this plan.