Small business owners could get much-needed relief from the economic recovery bill since the U.S. Small Business Administration is pegged to receive $730 million to improve its loan programs.
Since the number of SBA loans has dropped dramatically due to the recession, the American Recovery and Reinvestment Act signed by President Obama Feb. 13 has given banks incentives to issue more loans to small businesses. It also removes obstacles that have prevented business owners from seeking them and gives owners incentives to seek them.
>> making it is easier for banks to sell loans on the secondary market,
>> increasing the loan amounts the SBA can guarantee,
>> providing funds to help companies pay off previous loans, and
>> reducing SBA loan fees.
The degree to which SBA loans have decreased varies by state. As an example, in Wisconsin the number of loans is down 36 percent compared to last year, and the amount of dollars loaned is down about 30 percent, Eric Ness, district director for the SBA’s Wisconsin District, told SNEWS®.
“There are a number of factors at work,” Ness said. “Some larger national lenders who came into the Wisconsin market are not here anymore.”
National lenders have stopped issuing SBA loans in certain areas because they have not been able to resell the loans to investors on the secondary market. The new stimulus bill allows the SBA to set up a secondary market for pools of “first lien” loans, and guarantee these loans with federal money; in the past, these first lien loans had no SBA guarantee.
The SBA will also increase the amount it can guarantee on certain loans, which could encourage lenders to invest in small businesses. The SBA will now be able to guarantee up to 90 percent of certain loans; in the past it has been able to guarantee up to 85 percent.
Incentives for business owners
While the plan gives banks more incentives to loan money, it also gives business owners incentives to seek SBA loans. Over the past several months, SBA loans have slumped in part because companies were already struggling to pay previous loans.
“One thing we are hearing is that they’re having trouble making their payments,” said Ness. But the new act addresses this problem with $255 million in what it calls “business stabilization loans.” With these, the SBA can loan a business up to $35,000 to make up to six months of payments on existing loans. The SBA guarantees 100 percent of the $35,000 loan, and a business does not have to begin repayments until 12 months after receiving it.
“This has really struck a chord with businesses, and a lot of people have been calling us to ask about it,” said Ness.
More obstacles knocked down
The new plan also provides money that will allow the SBA to reduce or eliminate fees on loans, removing one more obstacle.
In addition, the act expands SBA’s “Microloan” program in which the SBA gives money to “microlenders” who then loan businesses up to $35,000 and provide technical assistance. Microlenders will have access to an additional $50 million through Sept. 30, 2010, and there will be an additional $24 million in grants for technical assistance.
“The key component is the technical assistance provision,” said Ness. “Not only do they get a microloan to start or expand their business, but they also get people meeting with them, giving them advice, so they can be successful. I’ve talked to small businesses that said that it was invaluable.”
To read more about stimulus bill’s affect on the SBA loan program, go to www.SBA.gov.