SBA Out of Funds to Facilitate Favorable Small Business Loans

Funding ran out on Friday for a Small Business Administration program that increased loan guarantees and reduced or eliminated loan fees for its two largest small-business recovery lending programs -- a week or so earlier than had been expected. The most recent influx of funds for the American Reinvestment and Recovery Act program, $125 million, had been expected to last through February.This doesn't mean that loans will cease to be available to small businesses, but for now, those that need money will have to accept the relatively less-favorable terms of traditional SBA loans.

The loan guarantees and the reduced fees had a significant impact: By guaranteeing 90% of the loan (rather than the usual 75%), the SBA reduced lenders' risks, making them more willing to lend money at more favorable rates and on less strict terms;
by covering part or all of the fees, the program made loans more affordable for borrowers. Under the Recovery Act terms, a small business could have saved up to $40,000 on a $2 million loan. That savings could be enough to hire an additional employee -- just the sort of thing the country needs right now.

Clearly small businesses are ready to spend and hire people, but money and credit are scarce.

$500 Million in Government Funds Moves $20 Billion in Loans

The original $375 million SBA Recovery Loan program ran out of funds in November 2009, and the additional $175 million appropriation ran out last week, said SBA Administrator Karen Mills. The SBA said it has seen its average weekly loan volume increase by nearly 90% since February 2009.

Since February 2009, Mills said the SBA has used the $500 million allocated to the program to support more than $20 billion in lending to small businesses. Mills also noted that under the Recovery Act, 1,100 lending institutions were brought back into the SBA lending program that hadn't made SBA loans since 2007. Loan programs from the SBA have helped tens of thousands of small businesses and supported hundreds of thousands of jobs during the downturn, Mills said. Still, she noted, there is more work to be done.

"The SBA advocates for small businesses across the federal government and will continue its efforts to keep America's small businesses on a path to recovery and success. Small businesses are a central piece of President Obama's jobs plans because they have been and will continue to be a key engine for job creation across this country," Mills said in a press release.

Get in Line Now for Next Batch of Recovery Funds

The key for small businesses that need loans is to get in line now for Recovery Act funds or to apply for traditional lending, if they qualify. Traditional loans have stricter terms and may be harder to get.

But for those small-business owners holding out hope for the better deal under the Recovery Act system, there are two options. Sometimes money that gets earmarked for a small business loan is not disbursed. If that happens, those Recovery Act funds return to the pot, and those who are in the Recovery Loan Queue have first dibs. The SBA restarted the Recovery Loan Queue on Monday, according to Mills.

The better option to hope for is action on Capitol Hill. The House passed an extension to the Recovery Act allocating additional funds in December 2009, but the bill is stalled in the Senate. Meanwhile, Obama's $30 billion program for small business lending is also waiting for congressional approval. If Congress does extend and fund the Recovery Loan program, those in the queue will be first in line. Small businesses can watch the queue online.

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