U.S. Congress has extended breaks on U.S. Small Business Administration (SBA) loans for another month, making the loans less risky for lenders and more affordable for borrowers. Through April 30, the SBA will guarantee 90% of the amount of its flagship 7(a) loans, and reduce or eliminate fees on 7(a) loans and 504 loans. These breaks were initially funded by $375 million in the economic stimulus bill and now have been extended three times.
As a result, SBA lending is up significantly this fiscal year, which began October 1. Through March 26, the number of 7(a) loans is up 48% and the dollar amount of 7(a) lending is up 116% from a year ago. Use of the agency’s 504 loan program, which primarily finances owner-occupied real estate, also is up dramatically. “These programs have been successful in helping jump-start our economy,” said SBA Administrator Karen Mills.
Lenders and small businesses do have one complaint about the extensions: They would like the certainty of knowing the higher government guarantee and reduced fees will be available through the end of the year. Instead, the U.S. Congress has been renewing the breaks on a month-by-month basis this year, creating pressure on small businesses and lenders to complete their loans before the latest extension expires. These short deadlines “have been really disruptive” for borrowers and lenders alike, according to Greg Clarkson, a Dallas-based executive vice president and SBA division manager for BBVA Compass, the nation’s third-largest SBA lender in 2009.
“It’s causing the small businesses to be forced to adjust their time lines to meet these deadlines,” Clarkson said.
“Some small businesses may not be prepared to act so quickly to get a loan,” he said. “But if they don’t, they may not be able to get one. The 90% guarantee, up from the usual 75% on SBA loans, enables bankers to make loans they otherwise would reject. That’s important because many small businesses are still facing the same financial problems that caused banks to tighten their credit standards nearly two years ago. Even if business is beginning to pick up, it won’t show up as a positive trend on many borrowers’ financial statements until 2011,” Clarkson said.
President Obama wants the U.S. Congress to extend the breaks on SBA loans through the end of the year. “I look forward to working with my colleagues in Congress to ensure these programs receive a long-term extension,” said U.S. Sen. Mary Landrieu (D, LA), who chairs the U.S. Senate Small Business and Entrepreneurship Committee.
The Senate included funding to keep the 90% guarantee and reduced fees in place until the end of the year in legislation that passed March 10. The U.S. House also has voted to extend the breaks, but in separate legislation that included other provisions. A long-term extension won’t occur until the House and Senate both pass the same bill.