The Senate voted on Thursday to include a proposed $30 billion lending program in a package of aid for small businesses, as two Republicans joined with Democrats to support the amendment.

The vote was 60 to 39, with Senators George LeMieux of Florida and George V. Voinovich of Ohio, delivering crucial support despite harsh criticism of the proposal by some of their fellow Republicans who derided it as a “bailout” and a mini version of the Troubled Asset Relief Program, the huge government rescue of the financial system.

The Senate must still vote on the overall small business measure, which also includes more than $12 billion in various tax breaks and an expansion of several other government lending programs. Republican leaders are pressing to offer amendments to the bill and it is not yet clear if it will be approved.

Senator Mary L. Landrieu, Democrat of Louisiana and chairwoman of the small business committed, waged a fierce fight in support of the $30 billion lending program, which would be administered by the Treasury Department through local community banks.

“This is something that we want to do to help Main Street, to help small business,” Ms. Landrieu said in one of a series of floor speeches. “This isn’t about Wall Street. It’s not about bailouts. It’s not about troubled assets. It’s not TARP. It’s a small business lending fund, a strategic partnership with community banks.”

Procedural wrangling over the amendment and other issues delayed the Senate vote until after 10 p.m.

The $30 billion lending program was so controversial that on Wednesday, the majority leader, Harry Reid of Nevada, removed it from the base text of the small business bill and instead proposed it as a separate amendment, in hopes of keeping the legislation alive even if the amendment failed.

Supporters of the lending program said that it would help community banks increase lending to small businesses and that the banks would potentially be able to leverage the $30 billion into $300 billion in loans. The Treasury Department helped design the program.

Critics said the program would encourage banks to make risky loans. “I believe this is the same old song and dance, expand the reach of the heavy hand of government,” said Senator Richard C. Shelby of Alabama, the senior Republican on the banking committee. “Like TARP, this program does not lend money directly to small businesses; it would have the government take ownership interest in hundreds of banks.” He added, “This is TARP-2.”

But Mr. LeMieux, the Florida Republican, said that was not the case. “TARP went to the big banks who were failing at the end of 2008, a lot of whom were selling mortgage-backed securities and other exotic investments that they shouldn’t have been selling,” he said in a floor speech. “This has nothing to do with that. These are small banks. This is the banker you know down the street – the banker who’s at your rotary, who you see at church or synagogue. This is not some Goldman Sachs banker. This is the community banker who loans to the tailor, to the construction business, the folks that employ people in your hometown.”

 Has Mr. Bernanke spent much time talking to the business owners who are struggling to stay afloat?  Has he spent time talking to the alternative lenders who are inundated with applications by businesses who have been turned down by their banks and are desperate for cash?  Has he spent time talking to the firms retained by small businesses to help restructure unbearable debt and find a lender willing to take on a client that the bank “could not?”

 No demand?  Mr. Bernanke is apparently hiding his head in the sand.

 Meanwhile, big companies and banks are rebounding with record earnings and big reserves.  That will not, ultimately, help this country out of its economic mess.

Smaller firms employ roughly 60% of American workers; new smaller businesses  (less than 2 years old) are responsible for 25% of all job creation.  Together, they are expected to jump start the recovery. Paradoxically, these companies can’t get the credit needed to stay afloat, grow and create jobs.

 “Making credit accessible to sound small businesses is crucial to our economic recovery,” Bernanke said.  “More must be done.”  Simply applying verbal pressure on the banks is not getting it done. 

 While some banks are showing signs loosening up of their own volition, it will require both creative and pragmatic solutions quickly passed and enacted on the Federal level for others to follow suit.

 In the meantime, Mr. Bernanke, perhaps demand is down because the bank isn’t supplying.

WASHINGTON – Big companies are building up cash and are expected to report strong earnings starting this week. Not so for small businesses that can’t get loans — or hire freely until they do.

The gap helps explain why the economic rebound isn’t stronger and could even stall. Federal Reserve Chairman Ben Bernanke stepped up pressure Monday on banks to break the logjam and lend more to smaller firms, which employ at least half of American workers.

Small business owners are relying on personal credit cards or raiding retirement accounts to stay afloat, the Fed chairman said.

Bernanke and other regulators have urged banks for months to lend more to smaller companies. Lawmakers have complained that small businesses that want loans are having trouble getting them. Banks have countered by saying demand remains weak.

The Fed does have authority to create programs to increase lending, such as providing low-cost loans to banks. But economic conditions would probably have to weaken considerably before the Fed would propose such a move. One such program set up during the 2008 financial crisis was recently closed.

The Fed chief’s latest comments came as legislative efforts to spur small-business lending have languished, and as the recovery has lost momentum. Bernanke spoke at a Fed conference held to explore ways to loosen lending to small companies.

“Making credit accessible to sound small businesses is crucial to our economic recovery,” Bernanke said. “More must be done.”

Some small business leaders say they would hire more if only they had easier access to loans. One of them is Marilyn Landis of Basic Business Concepts Inc. of Pittsburgh, which compiles financial documents for other small businesses.

Landis says she would like to hire one or two more people for her 10-person firm and wants to expand into New England. Yet even though she says she’s never missed a payment, Landis says her line of credit was cut about 18 months ago.

She relies on credit cards to pay for everything from supplies to payrolls. Without additional credit, she says, “It is impossible to expand, and I can’t hire.”

Nearly one-third of small business borrowers report difficulty arranging credit, the National Federation of Independent Businesses says.

By contrast, big businesses, which start reporting their second-quarter earnings this week, have enjoyed easier access to loans and low interest rates.

Analysts expect companies in the Standard & Poor’s 500 to report a 42 percent jump in profit by one measure, S&P says. For the current quarter, which ends Sept. 30, they expect a 31 percent rise.

The big companies also benefit from something available to fairly few small businesses: plenty of cash.

In March, cash at S&P 500 companies hit a record $837 billion — about a year and a half’s worth of profits. And S&P senior analyst Howard Silverblatt says he expects cash to rise to a new record for the April-to-June quarter when figures are released later this summer.

Yet even as the economy has improved, lending to small businesses has declined. It’s dropped from around $710 billion in the second quarter 2008 to less than $670 billion in the first quarter of this year.

The Fed and other regulators have urged banks to step up lending to creditworthy small businesses. Despite the push, such lending is still tight.

The impact on the economy is severe because small businesses tend to drive job growth during recoveries. They employ roughly half of all Americans and account for about 60 percent of job creation, Bernanke said.

And newer small businesses — those less than two years old — are especially vital. Over the past 20 years, these startups accounted for roughly a quarter of all job creation, even though they employed less than 10 percent of the work force, he added.

The Obama administration in early May sent Congress a proposal to create a $30 billion program to unfreeze credit for small businesses. The fund would provide money to small and medium-sized banks to encourage them to lend to small businesses. The legislation has yet to pass the Senate.

Bernanke said it’s hard to tell whether the problem is banks refusing to lend to small businesses or a lack of demand from those companies. Each company faces different economic conditions and complex relationships with customers, suppliers and creditors, Bernanke said.

Some lenders say they have restored more traditional standards after a period of lax lending that contributed to the financial crisis.

Several big banks say they’re already lending more to small businesses. Bank of America lent $19.4 billion to small and medium-sized businesses in the first three months of 2010, an increase of nearly $3 billion from last year. JPMorgan Chase and Citigroup have pledged to lend more, too.

Combined, though, the dollar amounts are relatively tiny compared with how much banks would lend in a healthy economy, said Robert DeYoung, a finance professor at the University of Kansas.

“These numbers would be dwarfed by the increase in lending after the economy starts recovering, and the economy hasn’t really started to recover,” DeYoung said.

Banks will be able to increase lending significantly, DeYoung said, only after businesses feel confident enough to take on more debt. Prodding banks to lend before then raises the risk that they’ll make bad loans, he said.

“I wish I could conclude this wrap-up with a list of the three or four things we could do to immediately unlock small business lending,” Fed Governor Elizabeth Duke said at the conference. “But the problems are numerous and complex, and they will require creativity and persistence to solve.”

___

The banks cannot afford to make questionable loans, yet want to preserve the established relationship with the borrower.  Companies at a critical juncture need a credit facility for working capital, yet find their current bank is no longer an option.

There is a possible win-win solution to this puzzle: a third party, asset based lender.

A good asset based lender can provide benefits to both parties. These lenders focus on collateral verses profitability and have greater flexibility in underwriting a loan.

 The borrower wins, getting the capital needed from a closely involved lender.  The bank wins, preserving the relationship in the form of continued service in other day-to-day banking products.  Further down the road, when the challenges to the business have been resolved, it is likely they will return to their bank for their liquidity needs.

 By taking the lead in referring businesses to a third party ABL, the bank not only maintains control of the relationship with their client but, can actually be helpful in screening and protecting them from predatory lenders.

There are many legitimate asset based lenders with cash to loan.  An accredited broker (always make sure to thoroughly check references and BBB accreditation) will have established relationships with and access to a large number of these and so can address the concerns of both the borrower and referring loan officer.  They will provide a pool of lenders that are reputable and customized to everyone’s needs, ensuring that trust is maintained throughout the process.

BY JEFF NOLAND

 Despite bank bailouts from Washington, D.C., credit for small and mid-sized businesses remains extraordinarily tight. For many banks, the lending pipeline is simply too clogged with “non-bankable” loans to even consider relaxing their credit standards for new loans, even for their existing customers.

It is a situation that not only frustrates borrowers, but also creates a conundrum for local banks. On one hand, most banks simply are not in a position to make questionable loans to companies with tied-up capital, limited collateral or weak earnings. On the other hand, banks do not want to lose the opportunity to service – or continue to service – a company’s treasury, deposit accounts, lock box, sweeps and other day-to-day banking products.

How can a bank loan officer say “no” to a company’s lending needs and yet still preserve the relationship with the borrower? What can a company do to secure a credit facility for working capital when its current bank isn’t an option?  

The presence of a third-party, asset-based lender may provide the answer to both questions. With an asset-based lender, a non-bankable borrower often can secure necessary working capital its bank can’t provide. As a result, an asset-based lending source may help clear the way for a bank to instead service the customer with basic treasury services.

In a sense, an asset-based lending source can turn a bank’s “no” into a “yes.” 

Unlike a bank, an asset-based lender’s underwriting criteria focuses on a borrower’s collateral (hence the term, asset-based lenders), not on cash flow or profitability. 

Many asset-based lenders are unregulated, thus they operate with much greater flexibility than typical banks. Plus, asset-based lenders loan their own money. As a result, they closely monitor their borrowers and their assets on a daily or weekly basis. Businesses that understand this up front – before they meet with an asset-based lender – inevitably are more comfortable in the relationship.

Because asset-based lenders are transaction-oriented and not relationship-oriented, a bank is able to refer a borrower to an asset-based lender and still maintain the “lead” in the relationship with the borrower. In time, the challenges facing the business will be solved, leading a business to return to their bank for their future credit needs. In the meantime, the bank can service other segments of the borrower’s needs and hence maintain the borrower’s trust throughout the entire process. 

From the borrower’s perspective, a good asset-based lending partner should present the same benefits a typical bank presents to a borrower. Does the asset-based lender in question present immediate access to its decision makers? Does the asset-based lender understand the local marketplace?  Are its decisions made locally? Are there certain industries the asset-based lender focuses on? Are there some they exclude?   

Similarly, banks looking to forge a relationship with an asset-based lender should consider several factors as well.  

For example, can the bank loan offer be confident the asset-based lender will handle the situation in a trustworthy manner? Will the asset-based lender get its decision makers involved so the process doesn’t get bogged down in bureaucracy? Will they move quickly? Do they finance enough different kinds of assets to provide a complete solution to include real estate, accounts receivable, inventory and equipment? Are they a broker or do they make and keep the loans themselves? In other words, will the referring bank lose control of the relationship if someone else is really making the loan? Is the size of the transaction within their “sweet spot,” or is it too small or too big?

To be certain, these and other considerations should be addressed before a bank refers its borrowers to an asset-based lender.  

However, if an asset-based lending source can address the concerns of both the borrower and the referring loan officer, then there is a good chance of a win-win partnership that can turn that “no” into a bankable “yes.”

It was late October when President Obama first called for measures to stabilize struggling small businesses. Then, in his State of the Union address in January, he emphasized the role small business would play in healing the nation’s wounded economy. But it is only now, eight months after that speech, that Congress finally seems ready to act. And the House and Senate are so far apart that it is not clear that they will be able to agree on a bill that contains more than just a few of the president’s ideas.

In a series of speeches, Mr. Obama has outlined a three-point agenda for rejuvenating small business. First, he sought to increase the size of loans guaranteed by the Small Business Administration and to open S.B.A. loans normally used for new real estate projects to refinancing existing commercial mortgages. Second, because local community banks are responsible for much of the lending to small firms, he proposed using the Troubled Asset Relief Program to lend money to small banks that could in turn be reloaned to small businesses. And the president suggested further tax cuts and other incentives specifically aimed at the small companies.

 Congress did enact a tax incentive to encourage small-business investment and a tax credit for hiring workers, which was not restricted to small companies. But even though small business is notionally sacrosanct in Washington, finding consensus for the president’s broader agenda on Capitol Hill, even among members of his own party, has proved difficult. Representative Nydia Velázquez, chairwoman of the House Small Business Committee, did not endorse the president’s initial S.B.A. proposals, which would have raised loan limits on the S.B.A.’s most popular programs, to $4 million to $5.5 million, although she never explained why. In February, she openly criticized a second round of S.B.A. initiatives from the administration.

Meanwhile, community bankers reacted coolly to the idea of borrowing from TARP. “The unfortunate development in 2009 was that while both the administration and Congress wanted to put in place special TARP efforts to help small businesses, TARP became so badly stigmatized that it became impossible to get almost anyone to voluntarily participate,” said Gene Sperling, a counselor to Treasury Secretary Timothy F. Geithner who has been working on small-business issues.

An aide to a legislator involved in discussions about the lending fund acknowledged that the bailout was political poison. “The primary issue is, is the money going to come from TARP,” said the aide, who declined to be identified. “If not, does it look like TARP? Does it leave a TARP-like aftertaste? I don’t think anyone wants this to have a TARP-like aftertaste.”

As a result, Mr. Obama revised this proposal for the State of the Union address as a separate small-business lending fund. But this proposal, Mr. Sperling noted, requires Congress’s assent. “The reality is that it has just run up against an amazingly intense legislative calendar that has included not only extending vital economic recovery measures but two historic pieces of legislation — health care and financial reform — that are also critical for the economy.”

It took until early May to write the lending fund bill. The program would initially loan up to $30 billion to small banks at 5 percent interest, though banks that make additional small-business loans could have that rate drop to as low as 1 percent. Banks that do not make small-business loans would pay 7 percent. The administration also worked with legislators of both chambers to create a $2 billion program to finance state and local programs that help businesses get bank credit.

The House has moved first. In March, it passed a bill aimed at small companies with tax relief and passed a similar bill last week. It followed Thursday with a bill that included the president’s small-business lending fund and state assistance initiatives. But House leaders refused to allow amendments that would have added to the administration’s S.B.A. priorities. “Through this whole process,” said a senior Democratic aide in the House who declined to speak for attribution, “the administration worked very closely with the chairwoman of the House Small Business Committee. They came to an agreement, and that’s the bill that we’ve got. This is a product of consensus — everybody gave on this bill.”

The bill passed the House without a single Republican vote. Instead of stimulating the supply of credit, Republicans have argued for stimulating demand for credit by reducing the tax and regulatory burdens on small businesses.

Though Democrats tried to inoculate the lending fund with a legislative provision that specifically disassociates it from TARP, Republicans derided it as “TARP 3.0? and even tried to change the bill’s title to the “TARP Junior Act of 2010.” At the same time, Republicans professed concern that, as they wrote in a Financial Services Committee report, “banks could shun the program for fear of being stigmatized by its association with the TARP.”

Meanwhile, the Senate plans to unveil its own small-business bill in the next few days, according to Richard Carbo, a spokesman for the Small Business Committee. The legislation will comprise tax incentives and S.B.A. initiatives, he said, but senators have not decided whether to include the community bank and state lending programs. Senate leaders are worried the programs will not win bipartisan support, said Mr. Carbo and another Senate aide, who indicated these may have trouble winning over even moderate Democrats. Senator Mary Landrieu, chairwoman of the Small Business Committee, had not taken a position on the bill as of last week, said Mr. Carbo. But today, he said, “She is warming up to it.”

Her Republican counterpart on the committee, Senator Olympia Snowe of Maine, has had a major voice in shaping the Senate bill, in part because she is one of the few Republicans thought to be willing to support the legislation. The president’s proposals for raising S.B.A. loan limits closely followed Ms. Snowe’s own bills. However, her office repeatedly refused to say whether she would vote for a bill that also included a lending fund.

Bipartisanship will likely be hard to come by regardless of what the bill includes. In the House, Republicans opposed the tax bill that passed Tuesday, in part, they said, because its three very targeted tax increases on bigger businesses would more than offset the relief for small businesses. They also complained that the tax cuts didn’t go far enough.

“I think what the majority is laying out is kind of a happy life of low expectations,” said Representative Peter Roskam, a Republican from Illinois, during the debate over the bill. “This is so narrowly crafted and so de minimus and being proclaimed by the same folks that promised us great things in the stimulus that I think we can do better.”

“You say, ‘do better,’” retorted Sander Levin of Michigan, the chairman of the House Ways and Means Committee. “You won’t vote for anything.”

The bill passed 247 to 170. Only five Republicans supported it.

Should the Senate bill pass, it will have to be reconciled with the House’s legislation. If neither chamber prevails, Congress could wind up jettisoning both the S.B.A. proposals and the community bank and state lending programs, and passing only the tax incentives. These incentives could include making the gains on small-business stock acquired through next year tax-free, limiting penalties for violating tax shelter rules and increasing the deduction for start-up expenses to $20,000.

The administration is hopeful that it will get at least some of each part of its agenda, said Mr. Sperling: “There remains a solid commitment from the Congressional leadership to move a small-business jobs package that is broad and robust enough to at least include small-business tax relief, S.B.A. initiatives, and the president’s two small-business lending initiatives.”

Can there even be a question?  During the economic meltdown of the last two years, small business owners have been scrambling to find liquidity only to be shut out by the ever more stringent loan processes of banks shoring up their assets.

Mr. Bernanke acknowledged that small businesses are critical to job growth, the cornerstone of the Obama administration’s recovery plan.  Yet, without sufficient access to credit, these firms have a tough time even staying afloat, much less expanding payrolls.  Truly a dilemma.

Straight talk from Mr. Bernanke?  Definitely.  But, what good is tough talk without the necessary action to back it up?

True, the administration has proposed tax cuts and a fund to encourage lending by community banks; the Federal Reserve is sponsoring meetings across the country to discuss the credit dilemma.  Meanwhile, all the proposals and discussions are not delivering concrete and immediate solutions.

There are alternative lenders out there who can provide immediate access to cash to allow businesses to hang on and even grow through the economic recovery.  A reputable intermediary can match a company’s needs to the lenders who actually have cash to deploy.

Roughly 99% of all firms are small businesses and employ half of all private sector workers.  If job creation is necessary for economic recovery, then small business is the engine driving us out of the doldrums.

Yet, small business has been especially hard hit by the economic melt-down, scrambling to get loans for expansion, day-to-day operations or just to survive.  Finding the banks with their wallets closed, they are often forced into risky financing maneuvers (high debt on credit cards, collateralizing personal assets, etc.) thereby lowering credit scores and making it even harder to qualify for affordable loans.

Despite efforts to stimulate the economy by creating jobs with one hand, the federal government continues keep the other hand heavy on big banks and has not earmarked any federal bailout money to lend back out.  Credit to small business continues to be choked off.

Credit is vital for small business success; small business is vital for our country’s success.

Until liquidity becomes more easily accessible via the banking industry, there are other liquidity options to help companies survive, thrive and ultimately create new jobs for America’s long-awaited recovery.

Just as  small businesses have begun to rely more heavily on the federal government for help in opening up shop, growing or simply staying afloat, that ride is coming to a halt.  The money supply, once again, is all tapped out.

 Borrowers now have to get in line via the “Recovery Loan Queue,” a waiting list for those hoping Congress will come through with yet another extension.  In typical government fashion, this legislation isn’t likely to move quickly, leaving small business hanging.  Banks still can’t lend because they have to reserve cash for potential loan losses and Asset-based lenders are forced to be choosey given the large number of loan applications they receive.

 Small business is the engine of our economy and should be at the front of the line for cash instead of the back.  There are many firms which are dedicated to finding the best source for liquidity and making certain business owners get the best terms possible.  It’s always a good idea to look around at options…even while waiting in line.

Where: The Roosevelt Hotel, New York, NY

For more information, please visit: www.turnaround.org