Small Business Trends

Rieva Lesonsky recently wrote about the ongoing campaign to extend SBA loan adjustments created by the American Recovery and Reinvestment Act (ARRA) .

What this extension does is allows for higher guarantee levels on SBA 7(a) loans to 90%.  It also waives borrower fees on most 7(a) and 504 loans.  Presumably, this encourages banks to make more loans in borderline cases, and makes the cost of borrowing less expensive for small businesses.

President Obama has urged extending the ARRA loan adjustments until September 2010.  While that hasn’t happened yet, on March 26, 2010, the president signed an extension that will continue their extension through April 30, 2010. The SBA estimates the $40 million extension will make about $1.4 billion in new small-business lending possible. According to SBA Administrator Karen Mills:

“Thousands of small businesses across the country have taken advantage of these Recovery loan enhancements to get the capital they need during these tough economic times.   The increased guarantee and reduced fees on SBA loans helped put more than $23 billion into the hands of small business owners and brought more than 1,100 lenders back to SBA loan programs. As a result, average weekly loan approvals by SBA have climbed by 86 percent compared to the weekly average before passage of the Recovery Act.”

She goes on to note:

“Additionally, we continue to encourage the Congress to act on other proposals the President has put forward, including higher SBA loan limits and refinancing for commercial property mortgages to help thousands of small businesses avoid potential foreclosure.”

The SBA notes that loans funded under non-Recovery Act terms cannot be canceled and resubmitted to take advantage of the extended Recovery Act provisions. Nor does the extension affect other SBA Recovery Act programs, such as SBA microloans or the America’s Recovery Capital (ARC) loan program. There is still Recovery Act funding available for both programs.

I’m not convinced that the ARRA extension will have wide impact on small businesses (since the number of loans made by the SBA is fairly small when compared with the millions of small businesses out there).  But it might be just the lifeline that some small businesses need, pending an improvement in their circumstances.  And so if it aids even a few thousand small businesses, it’s worthwhile.

The big question that comes up is whether the ARRA adjustments will continue to be extended month by month.  The inefficiency in that approach is maddening for us as taxpayers.  And as business owners, it’s hard to plan if you’re not sure what to expect next month or the following month.

Lawmakers:   just extend it for a reasonable length of time.  If we ran our businesses with last minute stop-gap extensions all the time, we’d never make progress.