Noteworthy provision of business loan program ends too soon

Mike O'Donnell

Last month, one of the best, lowest-cost and most under-appreciated provisions of the Small Business Jobs Act of 2010 came to an end a mere 11 months after it started.

The act itself, when signed into law on Sept. 27, 2010, was heralded as one of the most significant pieces of small business legislation in more than a decade. However, many of the major provisions in the legislation were a bust.

A special $30 billion small business-focused lending fund was created, but only $4 billion was allocated to banks and lenders. The $12 billion in tax relief created by the legislation was useless in an economy in which profits and taxable income were minimal.

While these provisions fell flat, there were some other, noteworthy provisions of the act.

One of the most effective was the provision that temporarily allowed the U.S. Small Business Administration (SBA) 504 loan program to refinance conventional owner-occupied commercial real estate loans.

The 504 loan program had previously primarily assisted small firms making new investments in their communities. Through this provision of the Small Business Act, a small business could secure a stand-alone 504 refinance loan to restructure and refinance, on more favorable terms, an existing conventional loan on its owner-occupied commercial real estate.

This wildly popular provision expired exactly two years after the act was signed, on Sept. 27. Unfortunately, the legislation was not implemented until 13 months into that two-year cycle, so the program only operated for about 11 months before it went away.

Although the duration of the program was much shorter than anticipated, the program still had a significant effect on the successes of many small businesses across the nation.

In our state alone, Colorado Lending Source, a not-for-profit financing organization, approved more than 45 refinance loans totaling more than $36 million in debt restructuring from October 2011 through September 2012.

There’s no doubt many Colorado small businesses took advantage of this unique and beneficial program. One small business was able to refinance and save $25,000 annually in mortgage expenses. Another was able to refinance and pull cash out of its mortgage, freeing up much needed funds for an expansion.

Nationally, 1,612 stand-alone 504 refinance loans were approved, totaling more than $1.5 billion in debt restructuring for small businesses.

While that’s good news for small businesses, it’s a pity the program ended before more small businesses were able to take advantage of it.

It’s also a shame for the U.S. economy. The stand-alone 504 refinance program was one of the few, if not the only, national small business lending programs that cost the taxpayers nothing (according to the annual federal budget). That’s an economic boost that didn’t cost us a cent.

Because of the inaction of Congress, this highly effective, low-cost program came to an end too soon.

However, it is important to note that while small businesses lost this successful program, they can still take advantage of the traditional 504 loan program, which continues.

Businesses should be thankful that nothing will change for the two remaining 504 loan programs. Small business owners will still be able take advantage of incredibly low Wall Street interest rates to purchase, build or improve a building that they will primarily use in their business operations. And when the economy eventually returns and a small business gets ready to expand, the expansion plus refinance 504 loan program will be able to help them do that, too.

Perhaps one day, when Congress and the White House finally realize the 27.5 million small businesses in the United States are truly the entities that organically create jobs in this country, useful programs that cost taxpayers nothing, like the stand-alone 504 refinancing loan program, will be reinstated so we can boost the growth of the economy.