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HELOC Alternatives for Small Business Owners

[Mar 17, 2009.]


Small business owners have been finding it more difficult to obtain credit and financing to keep their businesses afloat during these trying economic times. Credit card companies have been freezing credit lines and closing unused accounts while banks are approving fewer and fewer home equity lines of credit.

Both credit cards and home equity lines of credit have been required tools of the trade for many small business owners. It helps them to survive the lean times and expand and grow during the prosperous times.

Small Business Loans have been equally as difficult to obtain.

Good news was announced yesterday for these business owners, many of whom have felt left out of the various stimulus packages that have been discussed or announced.

In a Reuters.com article, Obama was reported as saying:

"Small businesses are the heart of the American economy," he said during an event attended by small business leaders at the White House. "They're responsible for half of all private sector jobs and they created roughly 70 percent of all new jobs in the past decade."

To help start the flow of credit to small business owners, Obama announced plans to use up to $15 billion to buy up small business loans held by community banks. The funds would come from the Troubled Asset Relief Program approved by Congress to help stabilize ailing financial institutions. This would free up capital for these smaller community banks to begin lending again.

The Obama administration also announced that the 21 largest banks receiving government money must report monthly on how much lending they do to small businesses.

The Small Business Administration (SBA) intends to get rid of many of the borrower and lender fees for loans originated through its main loan program and will attempt to encourage longer-term borrowing.

According to a CNN.com article, "this year, at current rates, SBA-guaranteed new loans would not reach $10 billion. In an average year, it guarantees $20 billion in loans."

The Internal Revenue Service has also announced that small business owners will be able to carry back business losses for five years instead of the current two year limitation. This will allow business owners to increase cash flows and invest more in their businesses.

For those business owners that have relied on credit cards and home equity loans to fund their businesses, small business loans may become a more attractive alternative during this time as the government works to reduce the expense of such loans while also increasing their availability.


About Author:

Chris Rocks is the Regional Director of the National Credit Federation (NCF), a consumer advocacy group that assists small business owners and consumers overcome debt and credit challenges.

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