The Wall Street Journal
By: Emily Maltby
October 6, 2010
Small-business lending still hasn't bounced back to pre-recession levels. But despite a rocky year, the number of loans backed by the Small Business Administration jumped about 30% in 2010.
The agency, which ended its fiscal year Sept. 30, says it approved $16.84 billion, or 54,826 small business loans, in the past 12 months. That's up from fiscal 2009, when the SBA backed about $13.03 billion during the depths of the credit crunch. In 2007, the agency backed about $20.61 billion.
The boost stems in part from measures enacted by last year's stimulus, which eliminated fees and increased the government's maximum guarantee to 90%, up from 75%-85%. SBA loans are made by banks, not the SBA, but the government provides a guarantee to minimize the risk to the financial institution in case the borrower defaults.
Between February 2009, when the stimulus was signed, and May 2010, when the last round of funding for the provisions was exhausted, the SBA's average weekly dollar volume was $330 million. That's a significant increase from the $172 million weekly average in the seven weeks prior to the Recovery Act.
"The stimulus provisions work," says Tony Wilkinson, president and chief executive of the National Association of Government Guaranteed Lenders, a trade group in Stillwater, Okla. While SBA loans have traditionally been reserved for riskier businesses, "this is the main avenue for small-business lending today," he says. "A number of borrowers in SBA programs today would have gotten conventional lending years ago."
The stimulus provisions, which were extended four times in the SBA's fiscal 2010 year, were shut off in May, although the recent Small Business Jobs Act allows the program to continue through the calendar year.
SBA loan volume fluctuated dramatically during the agency's fiscal 2010, largely because of the stimulus provisions' pre-set expiration dates. Each time the SBA notified lenders that the program was about to end, lenders would clamor to push their loans through, surging the volume upward. Loans that didn't make the cut would then have to queue up on a waiting list until Congress agreed to allocate more money and extend the end-dates. During that time, the volume would drop off.
Throughout the summer, many loan applicants waited for Congress to continue the program. The extension through the Small Business Jobs Act, signed into law last week, costs $505 million and could provide by some estimates another $14 billion in lending. On Monday, the SBA had cleared the queue, approving about $970 million, or 1,939 loans.
Mr. Wilkinson is pleased that Congress sees the need for the program, but he worries that lenders and small-business owners will run into the waiting game again come January when it expires.
"It will be difficult to spend all that money between now and the end of the year," says Mr. Wilkinson. "We hope after the election in November Congress will make the funds available until they run out. Borrowers are going to need it."
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