On Monday, the President is expected to sign into law the Small Business Jobs Act of 2010. A much-vaunted element of the bill is a new 30 billion dollar pool of money for small business loans. But will this money be available for companies within the aviation industry?
The answer is, probably not. This provision only seems to apply to businesses whose credit renders them unable to get credit elsewhere. 15 U.S.C. 636(a)(1)(A) (“No financial assistance shall be extended pursuant to this subsection if the applicant can obtain credit elsewhere”). These “section 7(a)” loans are intended for new businesses.
When examining the section 7(a) program, the SBA is considered to be a lender of last resort, in that a bank must certify that the business is not able to obtain credit elsewhere before the business becomes eligible for “section 7(a)” loans from the SBA. Before The SBA is required to consider whether the business could obtain funds from sale of securities or sale of assets, or whether the business owners, management or principle shareholders could obtain credit or funding from their own personal assets, before SBA authorizes a loan. Thus, most small businesses that are in a position to create new jobs, are unlikely to be eligible for loans under the section 7(a) program that is funded by the bill. In particular, companies that have sufficient business to be seeking a loan for expansion (to increase jobs) are among those that could probably obtain credit elsewhere and therefore would be ineligible for this program.
There is also a clause in the bill that permits the formation of new non-profit lending organizations whose purpose would be to obtain funds from the SBA and make small business loans with these funds. At face value, it appears to leverage the lending power of the SBA by adding these non-profits to the ranks of those empowered to review and issue loans. There is a distinct intention that such funds be disbursed through community development organizations; but because these loans are still limited only to those who have already been denied credit elsewhere, it appears that the loans are unlikely to lead to a substantial number of new jobs in the aviation industry, and in fact they are most likely to go to companies that are least likely to be able to pay-back those loans.
The funds that can be disbursed by such community development organizations are only available to organizations that are new in the loan disbursement game – they must have one year or less in disbursing loans – so existing banks, community development organizations, or anyone with experience in disbursing funds is actually ineligible to serve as an intermediary for these funds. This smells an awful lot like political pork meant to to reward certain political supporters with their own slush fund!
The Bill also substantially increases the limits on loans that may be made to State and local development companies for renewable energy source plant acquisition, construction, conversion or expansion, including the acquisition of land. Cf. 15 U.S.C. 696. In a similar vein, there are generous refinancing provisions for renewable energy sources. But these provisions are unlikely to support any sort of investment in the aviation industry, except perhaps to support renewable-source fueling locations for an electric aircraft.
In fairness, the bill sets aside much money to support renewable energy sources, and supporting renewable energy sources has long been a stated goal of the current administration. But the bill is being sold to the American public as a small business jobs bill – not an energy bill. The Part of the Law that sets aside money for renewable energy sources is actually entitled “Small Business Access to Capital.”
This does not mean that the bill holds no benefit for small businesses in our industry. There is a new standard for defining small businesses that could be a boon to repair stations. Under he existing standard, most repair stations are considered small businesses only if their average annual receipts falls below $7 million. This can be a difficult metric for repair stations that sell and install high-dollar-value items, with only slim margins. A ten man repair station could install ten million dollars worth of avionics but only see $300,000 net profit on the installations (that’s $30k per employee with nothing left over for rent and other expenses). Under the current law, such a repair station is not a small business because of the high total revenues. Under the new standards, such repair stations may qualify as small businesses based on their average net income (which must be less than $5 million per year for the past two years). To qualify under the new (interim) standards, the business must also have net worth less than $15 million.
This new definition for small businesses may help some repair stations qualify as small businesses where they have been unfairly characterized as something else; but this provision is unlikely to have any real effect on jobs in the aviation industry in the near term.
In our next blog post, we’ll look at “Subtitle B—Small Business Trade and Exporting” and identify what elements of that Subtitle actually might help small businesses interested in exporting aircraft parts.