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Small business reacts to Obama’s plan

Government to buy loans hurting community banks

Posted: March 26, 2009 12:09 a.m.
Updated: March 26, 2009 4:55 a.m.

PACC Automotive mechanic Robert Birebirian changes the air conditioner of a vehicle Monday morning.

 
It might be too early to make any calls, but a couple of local businessmen see some potential in President Obama's recently announced plans to help small business.

On March 16, Obama announced a plan to allow the government to spend up to $15 billion to buy small-business loans accused of choking community banks and lenders. That in turn, could allow those banks to start lending again to small companies to invest, pay bills and stay afloat.

"I think that's a great idea providing the companies (that banks are) lending the money to are credit worthy and show they can pay back these loans," said Thomas Black, owner of Ewing Industries Inc. in Castaic.

"If a company needs working capital and they have a good credit rating and standards, they should be allowed to borrow the money provided they can pay it out and taxpayers don't get stuck holding the bag," Black said.

Black recently participated in a study conducted by Union Bank which found that Southern California's small business owners have turned decidedly pessimistic, saying they plan to cut spending and jobs this year.

According to the survey, which included 15 local businesses out of 2,000 total, they also hope government intervention will help them survive in 2009.

Hearing the news of Obama's attempts to help small businesses made Black somewhat hopeful.

"If the banks are willing (to give) the loan, I have the credit-worthiness to borrow that money, and I have the ability to build my business," he said. "I'd be looking to purchase a building in the industrial park - the loans would help me. Instead of leasing property, I would be able to buy a piece of property for my business. If money is available, I would certainly borrow it, knowing that it's going to help my business in the long run."

Based on the Union Bank survey results, it seems small-business owners are looking for "any and all help," said Joseph Benoit, a small-business banking executive with Union Bank, which has four branches in the Santa Clarita Valley.

"Although it's too early to evaluate how helpful it will be, $15 billion is a big number and I think that they will look forward to getting anything that comes their way and would be ready and willing to take full advantage of it," Benoit said.

Daniel Carpenter of Valencia's PACC Automotive wants to stay hopeful that government will help, but he's skeptical whether Obama's promises will actually make their way to small-business owners like himself.

"Who's it really going to help out?" Carpenter said. "Does it help out the small-business owner or Coca-Cola? The small guys and most other businesses in town usually aren't involved or get to participate. I just don't think, when they talk about small businesses, they are talking about people like us."

"Why do we have to borrow the money and (the dealerships) and all those guys get the money?" Carpenter added.

Normally, primary bank lenders issue loans to small businesses and then sell those loans to what's known as the secondary market consisting of bigger bankers. The sales allow the community lenders to make even more loans and keep the credit cycle going.

But that isn't happening because skittish investors have been staying away.

On a local level, a couple banks have not experienced a lending crunch. Bank of Santa Clarita said Wednesday it is still lending and remains aggressive in the small-business loan market because it does not sell its loans to a larger secondary-market bank.

"What (Obama's) proposing to do won't provide any benefit to us because we're already funding the SBA (Small Business Administration) loans," said Jim Hicken, bank president.

Union Bank is also still lending and hasn't experienced the tightening of small- business lending that Obama's plan primarily targets. But Benoit said if that money does make it to California institutions, he would have to believe that it would only be helpful, making more money available to small businesses.

Scott Wiener, owner of Scott Chiropractic, agreed that any help to small business is good. Even though his Valencia office has seen an increase in business, he said Obama's proposal could be worthwhile.

"If we weren't operating like we were, it would sure be nice to take out a loan," he said.

Obama said small businesses, which have created about 70 percent of new jobs over the past decade, are the "heart of the American economy," the "heart of the American dream" and the core of "America's story."

Treasury Secretary Timothy Geithner also ordered the Internal Revenue Service to issue new rules to help small businesses, including a rule to allow those who make up to $15 million to claim losses for the past five years in the current tax year.

The White House says that amounts to a rebate on taxes paid in previous years.

The Associated Press contributed to this report.

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