Last week, the House passed a $30 Billion small business bill previously passed by the Senate. Obama is expected to sign as well. More help is on the way to small businesses. However, will the bill help, or was the passage and signing more of a political move?

To begin, as I sat in some seminars this past week, cheers went out when news flashed a bill had been passed. On the surface, I would agree, any business assistance is great right now. However, the news may only be temporary.

Coming from a couple of speakers, including one from a branch within the SBA, the comment was made that the bill has a set a specific amount of funding, or will last until the end of the year, whichever comes first. That’s right, December 31 which is only three months – just after the elections. As I see it, the talking points for politicians are:

1. We passed a business bill to help small business. (Too bad no one is mentioning the time frame.)
2. Banks aren’t lending. (They are the bad guys, or fat cats, creating the problem.)
3. With the taxes set to expire December 31 as well, only the rich will be affected.

Pretty lame talking points in my view. Here’s why.

Reducing fees for borrowers as well as upping the guarantees for banks does make borrowing more attractive for both the business and the bank. Unfortunately, as another speaker said at the conference, only about 1 in 5 businesses are safe enough to lend to right now. As a result, banks are not lending to business because of risk and borrowers do not want to take on additional risk either. Kind of a stalemate. In addition, banks have not only regulatory compliance and increased FDIC amounts to pay, for example, which limits activity, but also SBA guidelines to comply which are rarely mentioned in headlines or quick commentaries.

With a risky economic situation (no one except economist believe the recession ended), elections and uncertainty in taxes next year, everyone is really sitting on the sidelines.

Speaking of taxes, are the rich really the ones who will be hit next year? Doubtful. The rich, including politicians, have financial vehicles – legally – such as corporations, charitable trusts, partnerships, etc. to use for limiting taxes – including estate taxes, which many average Americans do not have.

In the end, hopefully business will be helped, yet last week and this week’s headlines may be more political than practical.

I tell clients all the time when starting a business, find the money first before signing any contracts. As much of a “no-brainer” as the previous statement seems, it happens.

I know people who paid rent for six months before getting the funding for their business. Fortunately, the time was only six months. Could you imagine being in a contract for three years at $1,500 per month without a business? You would be out $54,000!

Before getting the keys to the property, first do a business plan so see the feasibility of the project. Next, find the money.

When finding the money, where do you look?

As I’ve stated before in my article, “Why Small Businesses Can’t Get Loans”, only about 4% of money for start up business comes from banks. Some of the big banks (such as Bank of America as I am told) have blanket policies not to lend to start up business. Wells Fargo had an advertisement talking about new business owners having friends around in the beginning, but now the people are gone and Wells Fargo is there to help. Is this a way of Wells Fargo saying they don’t lend to start up businesses?

Some banks won’t make a commercial loan for under $200,000 as well.

When a bank doesn’t lend to start up businesses, this practice may be their policy; however, if the project is good enough, the bank can seek the backing of the SBA and still do the loan.

The SBA (partially) guarantees loans to bank. The idea is when a loan falls outside the banks normal lending practices and/or the client cannot get money elsewhere, the SBA comes in to help businesses get the funding. The SBA has been called “the lender of last resort”. Businesses do not deal directly with the SBA. However, the ultimate decision still rests upon the bank.

So where does the money come from?

55% – your savings

10% – relatives

7% – partners

6% – charge cards

4% – venture capitalist

3% – friends

3% – Angel investors

3% – mortgage property

5% – other

Now consider grant money.

Grant is money that does not have to be repaid.

Most grants however require matching funds meaning the recipient also has to come up with funds in addition to the grant money they are receiving.

Grants are usually available through public or private community foundations primarily granting monies to not-for-profit agencies and rarely, if ever, grant money to for-profit businesses. The grant money for small business may come in the form of assisting you with help and education, not direct funds.

WATCH OUT FOR GRANTS – some grant wording changes throughout the conditions to terms such as – grant – to loan – to equity position. In addition, to satisfy the conditions of a grant, you may have to spend the money received to do so, thus netting you no additional funds to operate.

When getting help from the government, there’s one thing you need to know right up front about getting money from the government…

They don’t have a single dime to directly lend to you for the start-up of a small business.

You may believe this statement to be untrue because of the way the term “government loan” is thrown around, and we hear about government loans all the time. (Refer back the the SBA. The bank is the SBA’s client, not the business.)

The bottom line is there is no direct money. But that’s okay…

If the government had to give money to any American who wanted to start a business, just imagine how much money they would have to collect in taxes to fund such a program.

Besides, a capitalist system works best when the government uses a hands-off approach with regards to the competitive market system. Having the government choose who gets funded and who doesn’t is socialism not capitalism.

Finally, getting a funding may not be as difficult as it sounds because money is out there. If you have a good plan, collateral, credit scores, etc., you can find money. However, be prepared to face rejection and get creative if you decide to follow your dream.

Getting money for a small business is not easy for many reasons.

First of all, owners and prospective owners need to cut through the sales hype.

Advertising my say the President has ordered banks to loan money to those who qualify, but in reality, the President can’t simply do such actions.

Banks have internal business practices and structures just as any other business operates. Did you know some banks won’t loan on start up businesses or until a business has operated for two years? Some banks won’t make commercial loans under $200,000. Not all banks or credit unions do commercial lending.

Not lending is not always a bad thing. When we put money in a savings account, for example, we want our money protected. In order for our money to be protected and safe, we should want to bank to make prudent lending decisions, not risky loans. Risk is more for investors and with the added risk, investors should reap the rewards knowing the potential losses could be great.

In addition, a bank or credit union has regulations to meet before a loan can be approved on top of their standard operating procedures. If a loan falls outside the lender’s normal business practices, or parameters, but wants to do the loan, the bank can seek the assistance of the SBA. The SBA has guidelines determining lending activities too.

Next, take secondary market issues. Many loans are sold on the secondary market. What may make lending difficult in the future, as we have seen in the past couple of years , is obviously related to people making money on investments. The market has been in the tank starting in 2007; therefore, no one wants to investing losing propositions.

Moving right along, consider taxes. In 2011, tax laws revert back to pre-2003 levels. Dividend rates will go back up to 39%! Higher taxes and less profits on investments may lead to lower values on investments due to lack of demand, thus people once again losing money.

Investments and dividends are not just for the wealthy or Wall Street execs, but also the average Joe’s IRA and 401k accounts, mutual funds, exchange traded funds, etc. (Check out my article, “Kissing retirement money goodbye“.)

So when looking for money, according information derived from the Small Business Development Center, only about 4% of the money for start up business comes from the bank – approximately 55%-65% comes from personal finances or relatives.

Other forms of money comes from selling assets, home equity loans, partners, investors, etc.

Grant money is for another topic, but basically there is not any grant money “for profit” businesses and the government isn’t a direct source of funding (or cash) for business, which is not a bad thing either; but I’ll go into this at a later time. In the meantime, consider what our taxes would be if the government provided loans to everyone.

In summary, the business idea and creating a business plan may take the least amount of time, but finding money could take months so be prepared and possibly be creative.