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JJ Ramberg

JJ Ramberg is the anchor of “Your Business,” MSNBC’s weekly show on small business. In addition to her extensive television reporting experience, Ramberg has a background as an entrepreneur and co-founded GoodSearch.com. She has an MBA from Stanford Business School.



What about loan defaulters?

Posted: Wednesday, October 22, 2008 1:04 PM by Eve Tahmincioglu
Filed Under: ,

Everyone is talking about how difficult it is for small business owners to get loans these days.

But, for some reason, we've all forgotten about the firms that already have loans but are struggling to pay them off in a tanking economy.

That's why I was happy when I got an e-mail this week from the Small Business Administration describing the problem.

The government agency is reminding lenders that participate in the SBA's loan programs that they can give small business owners some breathing space when it comes to paying back loans.

That's the kind of reprieve that could make a difference to small firms teetering on the edge in this economy.

"The SBA is here to help small businesses during these difficult economic times. We are encouraging our lending partners to follow suit by extending three-month payment deferments on their SBA guaranteed loans to qualified borrowers who need relief," said SBA Acting Administrator Sandy K. Baruah in a statement.

"We recognize that small business owners are faced with challenging decisions right now," he added. "By providing three-month deferments to qualifying borrowers who are struggling, our lending partners can help small business owners free up the capital they need to maintain their businesses."

Basically, the SBA is telling bankers out there they have the authority under government loan terms to review each case and extend temporary payment relief for those small firms that qualify.

And the SBA is not only telling business journalists about this.

The agency just issued a notice to lenders and 120 of its field offices "encouraging them to look at these cases individually and to work with individual borrowers in order to facilitate the longer term success of these small businesses," the statement goes on to say.

Even if you skipped three months of loan payments, you may be able to work something out with your banker.

I did wonder why the SBA is doing this right now. Could it be that SBA loan defaults are skyrocketing?

A spokesman at the agency told me the default rate on general loans was 6.24 percent through July 31 of this year. Unfortunately, he could not immediately provide me any numbers from last year, so I couldn't compare the rates.

Bottom line is this: If you’re struggling to make that monthly loan payment and you have an SBA loan, call your lender ASAP and find out if you can get a temporary respite. You should also consider calling your banker, even if you don't have a government-based loan. After all, what do you have to lose?

What do you think of this development? Are you having trouble making loan payments?

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Comments

I think that, really, most businesses DO want to just pay their bills and keep on doing business.  I think that is the prevailing sentiment with MOST debtors - keep paying the bills and keep the life that the bills represent.  Unfortunately, with job losses, rising interest rates, ARM loans, the rise in the prices of necessities, etc, these factors make that simple act of just paying back money owed a complicated deck that is clearly stacked against the debtor.

It seems that much is being done for big badly managed companies and even many consumers who bit of WAY MORE than they could chew with jobs that werent commisserate with their credit/mortgages but nothing for the vast majority of little guys who just do their 9-5 and mail off their checks every month to pay their bills.  There are more of us and we are hurting too but we keeping our heads afloat in a storm with NO HELP.  We honor our agreements and take responsibility for our debts mostly without complaining but JEESH! does it HAVE to be SO HARD?  The credit card companies are raising OUR rates too because so many OTHERS have defaulted! Why punish ALL of us for the problems of the minority? Are they trying to get ALL of us to default too?  We arent asking for special treatment just asking that they not stack the deck against us and make our hard times even harder.

Tina Tafoya, Washington DC (Sent Wednesday, October 22, 2008 3:23 PM)

I agree with Tina. We have a good business and much experience. Our business was doing well until all the trouble hit - just like many others - now we are struggling. Our debt load is not extremely high - but we have to order in new product and everyone wants money. We pay on time and always pay our sales tax - but then pick up the paper and see so many bigger guys with tax liens - which come from not paying for quite a while. So more likely than not we will close our doors in 2009. Why work our tails off and be so honorable - to loose money. I have talked to many small business owners in our area who are going further and further into debt - or were - to just try to stay open. We will not do that - but the area will loose a good business. The joke at our house "Honey have you heard from the "bail-out" people?????"

fb, Middle America (Sent Thursday, October 23, 2008 1:52 PM)

Do you have a link to the email from the SBA - or can you forward a copy of it? We are only 8 weeks new in business and it would help greatly when we talk to our lender.
Thank you VERY much!
Patty

Patty, Sanger, California (Sent Thursday, October 23, 2008 9:23 PM)

As a small business owner of a car wash and SBA loan receipent, I am glad to hear but remain skeptical, that the SBA is doing something to help us out with the downturn in the economy.  We opened our car wash three years ago with a small SBA loan and a larger loan from a private bank.  Not once in the past three years have we missed a loan payment.  Business has gotten so slow that this past week we had to put in our own personal money to meet one of the loan payments and have no idea if we will be able to meet the next payment due on the SBA loan the first of next month.  The really frightening thing in our situation as entrepreneurs is we have everything to lose unlike those subprime mortgage defaultors-  in order to secure our business loans we actually had to put up collatural, imagine that!  That collatural included a 20% cash downpayment and our home and cars.
Now because of the greed and ignorance on the part of our law makers and Wall Street the average citizen that uses our car wash does not have the money to use our facility.  They are too busy trying to pay for rising utility bills, higher food & gas prices, and taxes!
If we are lucky enough to survive all of this our family is planning to liquidate our assets and investagate moving to a different country; a country that still appreciates and rewards  entrepreneurship.  I never thought I would live to say this but our great Country is now in the hands of total incompetent and corrupt leaders who care more about rewarding the 'Do Nothings' in our society than the hard working folks that pay all of this Country's bills.  
What is truly disheartening regarding our situation is we have worked hard, opened up employment opportunities for other people, paid our bills and taxes on time - all for the prospect of losing everything that we have acheived due to a Government full of despots. Ultimately we the honest citizens have trusted them to do the right thing, that was our deadly mistake.    

     

Lynn Matison, Newnan, GA (Sent Friday, October 24, 2008 10:27 AM)

I have been talking with regional and community bankers in the Southwest.  Their liquidity is good to excellent and are more than willing to make loans to small businesses today.  They say there isn’t a credit crunch for them or their borrowers!

Regarding the SBA’s new efforts to help small business owners.  I participated on a conference call with Administrator Baruah earlier this week.  By encouraging SBA lending partners to extend three-month payment deferments on their SBA guaranteed loans is a much needed relief package.  In addition, Baruah recommended small business owners do two things:  talk to your financial institution NOW-if you see things on the horizon that could cause you to not be able to make that loan payment.  Secondly, take advantage of the service SBA offers thought their loan programs, marketing plans, business planning, etc.  Your tax dollars have paid for this free service.

Terry Neese, Oklahoma City, OK (Sent Friday, October 24, 2008 11:08 AM)

I think some of the point is missed in this article - A truly small business is the Mom and Pops out there - with very little room to cut when things get tough. We don't have a bunch of overhead - but lots of sweat equity!! Unfortunately in these tough times - that does not count for much. Like Lynn said, in our area people are struggling to make ends meet. My gift shop is way down on their priority list. I understand, as my husband and I have also tightened our belt. I agree that Washington has become so out of touch. They preach a good show - but little is ever done. This whole deal was falling apart while Congress was holding hearing on steroids - I mean - Come on...They all live a life style that cannot possibly equate to those of us who struggle every day. We don't run our business on the premise of taking out more debt - we would rather close the doors. We try to balance our budget - the government needs to do the same thing. We need to start over in Washington, but that will not happen.

More fb, Middle America (Sent Saturday, October 25, 2008 10:44 AM)

From what we have learned in contacting our "SBA lending partner" the SBA is willing to defer mortgage payments for three months but at the end of those three months the small business owner will not only owe their orignial mortgage payments back it will have an additional amount added to those payments to make up for the three month deferment payments.  Now, tell me this, if my business is already having trouble meeting the mortgage due to an economic crisis, then what makes it a reality three months down the road it will be able to catch up those mortgage deferments plus the additional amount due on those deferments?  As noted in my previous comments I remain skeptical that the SBA is truly doing something to help out small business owners regarding paying their mortgages during this severe economic downturn.  Rather than doing the logical thing and putting those deferments at the end of the life of the loan, the SBA expects the small business to make up for it beginning in three months.  Seems to me the small busness is worse off than before unless the ecomony begins to boom again in less than three months; which according to all of the experts, could take much more time for the economy to come back.  The only real solution that the SBA can act upon is to do what the government is considering in the subprime mortgage debachle; work with borrowers to refinance their loans at a better interest rate for a longer term loan.  Commerical loans (including SBA loans) have a higher interest rate and do not offer 30 year terms like residential loans.  From what I have heard regarding the SBA's help to small business owner's loans, the three month deferment will only prolong the agony and the results will be the same- likely default on their loans.  Further, if a lot of the commerical paper that the Banks and SBA own goes south that will only add to the economic melt down.  If this bandaid approach for a gunshot wound is all the SBA can come up with then expect to see a lot more small businesses close and more job loss to occur.

Lynn M., Newnan, GA (Sent Saturday, October 25, 2008 3:23 PM)

Our small business had a small SBA backed line of credit which we religiously paid, even in the worst of times. When the time came to renew the line, the bank declined to do so. Without this credit line, we could no longer tap cash to purchase needed inventory to fill customer's orders. No matter how much we negotiated with the bank, they were not forgiving at all. This bank, Bank of America, on the other hand, has continued to purchase LaSalle Bank, Countrywide and Merrill Lynch, but would not budge on any level to help keep a small business afloat. What is wrong with this picture that essentially the CEO of the bank, similar to other CEO's of major institutions, could not care one bit about the plight of small business owners hard work and dreams. As long as they earn their respective huge bonuses, etc. in the millions, that is all that matters. Our government needs to rein in this banking train that is running out of control before even more damage is done to our wonderful nations founded upon hard work, commitment, dedication, and the American Dream. We are all entitled to it, not just the select few.

VH, Caldwell, NJ (Sent Tuesday, October 28, 2008 11:46 PM)



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