September 1, 2014

Are SBA Loans Really Growing Like Gangbusters?

A recent Growthink blog post titled “SBA Loans Are Growing like Gangbusters” included reference to SBA administrator Karen Mills’ statement that average weekly SBA loan approvals have gone up 86 percent since the American Recovery & Reinvestment Act became law. Similarly, an SBA fact sheet reported that “From Feb. 17, 2009 to Apr. 16, 2010, weekly SBA loan dollar volumes rose more than 90 percent in the 7(a) and 504 programs, compared to the weekly average before passage.”

These numbers give the impression that the American Recovery & Reinvestment Act has put a lot of SBA loans in the hands of America’s small business owners. But how do loan volumes compare to anything other than the nadir of a frozen small business credit market in late 2008 and early 2009?

To answer this question, I took a look at the weekly SBA loan volumes back to 2001. To take into account the effects of inflation, I measured them in real dollar terms. As you can see from the figure, SBA loans have returned to the levels of 2006 and 2007, but not quite to the levels of 2004 and 2005 from a very low level in 2009.

SBA loan volume 2001 - 2010

I leave it up to you to decide whether these numbers show huge growth in SBA loans or just a return to historical levels.

12 Comments ▼
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Scott Shane


Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

12 Reactions

  1. Hi Scott, the point seems pretty clear to me: growth is big only when compared to last year — not in absolute terms. :)

    Just a quick editorial: I find it so interesting that the media spends so much time talking about SBA loans, as if they single-handedly are propping up the small business market. When figures are reported they almost always are reported as combined dollar numbers, not number of loans. I guess the concept is to try to impress everyone.

    So let’s do some back-of-the-envelope math and see how many SBA-backed loans really are made. If the loan volume is $300,000,000 weekly, and the average loan size is $150,000 (my educated guess), that would mean 2,000 small businesses a week are getting SBA loans. In a year’s time that works out to 104,000 small businesses getting SBA loans.

    While 100,000+ small businesses getting loans is nothing to sneeze at, it’s just a drop in the bucket when compared with 27+ Million small businesses out there — or even the 6 Million with employees. And it’s a drop in the bucket compared with the millions that have credit cards.

  2. Anita,

    I couldn’t agree with you more. In fact, you are guessing high about the share of businesses that get SBA loans. In a Business Week column a couple of months ago, I reported the SBA loan numbers when talking about how small the effort to increase the Express loan program is.

    I wrote, “”According to the National Association of Government Guaranteed Lenders, banks made 44,220 SBA 7(a) loans in 2009. Given the number of businesses in operation last year, this means that SBA 7(a) loans went to less than 1% of active small businesses with employees. Moreover, in a 2007 report to Congress, the Federal Reserve explained that 7(a) loans account for 90% of all SBA loans, making the number of candidates for the higher limit on SBA Express loans a tiny sliver among the small business population.”

    If you want to discuss small businesses with and without employees as you do in your comment, the numbers are even smaller. Non-employer businesses are 3/4 of the total. So the share of all small businesses getting SBA loans last year was between one tenth and one twentieth of one percent (roughly 50,000 small businesses out of 29.6 million in total.

    You can see my article at http://www.businessweek.com/smallbiz/content/feb2010/sb20100218_422918.htm

  3. Thanks for putting sense to these numbers Scott. I appreciate that you are a voice of reason in these crazy times helping small businesses to maintain a connection to reality, despite the media. The numbers reported present this very hopeful sense that if I’m in need of a loan – I have a chance. But that isn’t remotely true or likely. To Anita’s points in other posts and conversations – the best source of funds is found by increasing sales and profits.

  4. Scott and Anita,

    People don’t understand unless they are involved in SBA is that SBA 7A loans tend to be lent by most community banks to finance real estate purchases. This means that the dollar amounts don’t correctly reflect how many small business owners it is actually helping out there. Scott, you’re seeing so many loans to business without employees because of the real estate. They are borrowing in a passive partnership that is independent of the real business.

    A community bank may lend $2 Million in one month but that can be 3 loans because of the real estate component.

    The loans for working capital is a much smaller dollar amount and may be $100,000 out of that $2 Million.

    Keep in mind too that SBA is a loan guarantee program. It takes banks to actually lend the money and banks are not open handed about the lending right now.

    Business lending is not going to improve dramatically anytime soon. See why here http://www.moneyandrisk.com/ideas-for-business-owners/kiss-your-small-business-loan-goodbye/

  5. While it’s good to see these loans being made, I don’t think they provide a very representative look at SMBs generally. Thanks for making that apparent Scott.

  6. Thank goodness for those of you disseminating the truth behind the ‘headlines’ put out there.

  7. Hello..
    from..SBA LOAN
    This aggregation shows that SBA loans were purchasable pre-recession (2005 to 2006), became tight during the upon of the incurvature (2007and 2008), and, perhaps as a ending of the stimulus, resumed to pre-recession levels in 2009 That speak pretty logical with the end of the input package to me.
    LUCY

  8. Small business tips that I would recommend are that small businesses need to find funding from small business lenders. In today’s market it is difficult to do so because everyone seems much more cautious about lending money to relatively unknown companies (especially if they are new and small). I would suggest to small business owners that they check out iBank.com. Here we match up small business owners with potential lenders who are able to finance loans. Great article! Hope that helps!

    [Edited by Editor]

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