Wednesday, October 06, 2010

Small Business Loans Jump Despite Unsteady Economy

Small Business AdministrationIt is no surprise to anybody that small business lending hasn't returned to the same glory it had pre-recession, but despite a rocky year, the number of loans backed by the Small Business Administration increased by nearly 30% in 2010.

The Agency, whose fiscal year ended on September 30, reports that it approved $16.84 billion in loans in the past 12 months which can roughly be translated into 54,286 small business loans. This is an increase from fiscal 2009 when the Small Business Administration approved nearly $13.03 billion in loans during the depths of the credit crunch. The agency backed nearly $20.61 billion in 2007.

This boost comes, in part, from measures incorporated into last year's stimulus package. These measures eliminated fees and increased the maximum guarantee of the government to 90% which is up from 75%-85%. Banks make the SBA loans, and not the SBA but the U.S. government provides a guarantee to minimize the risk to the financial institution in case the borrower defaults.

Between the time the stimulus was signed in February of 2009 and the last round of funding for the provisions was exhausted in May 2010, the SBA's average weekly dollar volume was $300 million which is a significant increase from the $172 million weekly average in the seven weeks prior to the Recovery Act.

According to Tony Wilkinson, President and CEO of the National Association of Government Guaranteed Lenders, a trade group out of Stillwater, Oklahoma, "The stimulus provisions work. This is the main avenue for small business lending today. A number of borrowers in SBA programs would have been eligible for conventional lending years ago."

The stimulus provisions, which have undergone four extensions in the SBA's fiscal 2010 year, were shut off in May. However, the recent Small Business Jobs Act allows the program to continue throughout the 2010 calendar year.

The volume of SBA loans fluctuated intensely during the agency's fiscal 2010 year. This is largely due in part to the stimulus provisions' pre-set expiration dates. Each time lenders were notified by the SBA that the program was about to end, lenders would rush to push their loans through. This would, in turn, cause an upward surge in volume.

Loans that didn't make the cut would then queue up on a waiting list until Congress agreed to allocate more money and extend the end-dates. Volume would drop off during this time.

During the summer months, many loan applicants waited for Congress to continue the program. The extension through the Small Business Jobs Act, which was signed in last week, cost taxpayers $505 million and could very well provide a possible $14 billion in loans. On Monday the SBA had cleared the queue and approved nearly $970 million or 1,939 loans.

Mr. Wilkinson is happy that Congress addressed the need to help the program. However, he worries that lenders as well as small business owners will be forced to sit and wait again when this program expires come this January.

"It will be difficult to spend all that money between now and the end of the year," says Wilkinson. "We hope after the election in November Congress will make the funds available until they run out. Borrowers are going to need it."
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