LOS ANGELES — Months after Congress authorized a new loan program to help companies at risk of foreclosure, the Small Business Administration says it's ready to get started.
But the agency has restricted access to the loans so significantly that many businesses in danger of losing factories, offices or stores won't qualify. Excluded are any firms that already have real estate loans backed by the SBA, along with many that refinanced at unfavorable rates during the worst of the credit crunch.
"This is not good for small business," said Scott Hauge, president of advocacy group Small Business California. "It's awful. I don't think they're meeting what was the intention of the bill."
Under the rules announced this month, businesses facing balloon payments on buildings in which their businesses are housed will be allowed to refinance with loans guaranteed by the federal government, even if those buildings are no longer worth the full amount of the mortgage.
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But the loans will be available only to those companies whose mortgages are coming due over the next 24 months. And the program will cover properties that are worth less than what's owed on their mortgages — or underwater — only if the owner puts up 10 percent of the loan amount in cash or has equity in another property.
Additional collateral, such as equity in the family home, would also be required in many cases.
The agency also plans to charge businesses fees for the loans. According to the regulations released last week, borrowers will have to pay 1.043 percent annually in addition to interest charged by their lenders.
For a $1 million loan, that amounts to about $870 a month.
The SBA has also, for now, abandoned a provision in the law passed last year that would allow companies to use the loans to help pay business expenses in certain circumstances.
Congress authorized the program in September with the passage of the Small Business Jobs Act, but it could not go into effect until the SBA came up with rules and regulations to govern the loans.
Businesses can begin applying for the loans Monday.
Elizabeth Echols, who directs the SBA's western region, said the restrictions were added to make sure that businesses facing immediate balloon payments on their mortgages would get help first — before the $15 billion authorized by Congress gets used up.
Once those businesses get through the system, she said, the agency might open up the process to additional firms.
"We are really focused on prioritizing those businesses that are most in need," Echols said. "Once that need is met there is an opportunity to open the program more broadly, assuming we still have funding authority left."
The SBA estimated that 20,000 businesses nationwide will qualify for the loans, for a total of $15 billion over two years, Echols said.
Another reason for the restrictions, SBA officials said, was concern that the agency could have been forced to assume too much risk if lenders used the government program to refinance debt they wanted to get off their books.
This way, Echols said, companies with balloon payments coming due will be able to get in line first.
"This was one of our ways to try to control the spigot," SBA spokesman Jonathan Swain said. "Then as we move along, if we see we aren't going to reach that capacity, do we open this one up."
But the tight rules could also make the loans less attractive to lenders. John King, president of Green Commercial Capital Corp. in Georgia, said some bankers were disappointed with a provision that in effect would require them to make larger loans than they might like.
Kurt Chilcott, who runs a large San Diego-based nonprofit that specializes in SBA loans, welcomed the program and said many businesses in California will benefit from it.
But he said the agency may have tried too hard to narrow the scope of the loans that are covered.
"I think what SBA is trying to do is meet a need out there," said Chilcott, who is president of CDC Small Business Finance. "The question is, have they focused the program too narrowly."