Last Friday in my role as national public policy chair for NAWBO, I participated in a conference call with SBA administrator Karen Mills. During that call, Administrator Mills walked us through the details of several lending programs that were designed to ease the credit crunch for small businesses, fuel expansion and result in job growth.
She noted that the two most popular SBA American Reinvestment and Recovery Act provisions – the increased guarantee (90%) and reduced fees in the SBA’s two largest lending programs – have helped fuel a significant turnaround in SBA lending, with more than $20 billion in lending to small businesses. The SBA’s average weekly loan volume has increased by nearly 90 percent since a year ago.
She also said that because of the ARRA provisions, primarily the 90 percent loan guarantee, nearly 1,100 lending institutions had not made an SBA loan since 2007 were once again participating in SBA programs.
The downside of this is that the money earmarked for these programs and the authorization period (through Feb. 28, 2010) has run out. The original fund of $375 million ran out in November and an additional $125 million appropriation was approved in December to extend SBA’s 7(a) loan guarantee to 90 percent and reduce or eliminate borrower fees on both the 7(a) and 504 loans. As a result the Recovery Loan Queue was reactivated this past Monday, Feb. 22.
When asked why the SBA isn’t just getting back into the lending business if they’re already offering 90 percent guarantees on loans (meaning banks are keeping only 10% on their books, minimizing their risk), Mills and her staff said that the idea had been considered, but was rejected because it was faster, more affordable and more efficient to build on their existing programs and structures. Using their lenders’ branch banking system allows the SBA to execute more quickly than hiring the staff and building the programs that direct SBA lending would entail. Mills also noted that if a bank is unable to fulfill a loan request that has the potential for a 90 percent SBA guarantee, the loan probably shouldn’t be made with a 100% SBA guarantee either, which is what direct SBA lending would amount to.
Which brings me to a point I’ve been making for some time: While I’m not opposed to efforts to free up the credit markets for qualified businesses that need it for expansion, more credit is the last thing many businesses need right now. They simply don’t qualify, and taking on more debt would actually be bad for them. Mills addressed this concern by saying that companies in that situation should still become a part of the SBA system by seeking counseling and services through other SBA programs such as SCORE, the Small Business Development Centers and the Women’s Business Centers. There, these businesses can get the assistance they need with business planning, loan packaging and so on that will help them become bankable. For some businesses, that kind of assistance is going to be too little too late.
I still stand by my earlier comments that uncertainty in Washington is keeping many businesses from moving forward. Pending legislation with regard to health care, the environment, and union employment, for example, have real implications for businesses. The money that will be spent conforming to this legislation is money businesses will not be able to spend on expansion or hiring.