Business Buyers, Business Brokers Line Up For SBA Loans

Once again--for the third time--the SBA is offering incentives to encourage loans under its 7(a) and 504 programs, so entrepreneurs will have the funds needed for the expansion and purchase of small businesses.

Legislation referred to as the “Jobs Bill” recently signed by President Obama, includes a provision to grant another $60 million for the SBA so it can re-start its policy of guaranteeing up to 90% of loans and waiving loan fees.

The success of this strategy at getting banks to make loans to small businesses has been underscored by SBA Administrator, Karen Mills. She told Congress the incentive program has helped to spur $22 billion in lending to 55,000 small businesses since it was put in place in early 2009.

The SBA has predicted that the $60 million cash injection will help support another $1.8 billion in lending to small businesses. But, like the earlier versions of this program, it is unlikely that all prospective borrowers in what SBA calls the “Recovery Loan Queue” will get their approvals before the money is gone.

The program began when the SBA received $375 million under the American Recovery and Reinvestment Act, signed into law February 17, 2009. The incentives package then screeched to a halt in mid-November when all funds were committed. Another Congressional appropriation in December provided an additional $125 million. That kept the incentives in place until late last month.

Help for the SBA effort has gained support in Congress amid the charge that the billions of dollars lent to large banks for lending to large and small businesses has not achieved its desired effect. In fact, according to Nydia Velázquez, (D-NY), Chair of the House Committee on Small Business, the large lenders who’ve received bailout funds are using it for loans to big business.

Meanwhile, Congress passed legislation last October that would allow the SBA to make direct loans, cutting out financial institutions as the “middlemen.” This is not unprecedented, as the SBA has, in the past, been authorized to lend directly to small businesses. The bill has yet to be acted upon by the Senate.

Those who oppose the idea point out the SBA has only lent directly for disaster recovery purposes.  And a number of Congress members, as well as the President, feel that when it comes to processing loan applications, the SBA would be extremely slow and inefficient compared to commercial lenders.

Posted on March 18, 2010  |   Email This Blog Post   |   Print This Blog Post   |  All Contributions From Peter Siegel, MBA