What’s Happening with SBA Lending – and Do Small-Business Owners Care?

What's Happening with SBA Lending-and Do Small-Business Owners Care?When the American Recovery and Reinvestment Act was announced back in February 2009, the SBA received $730 million of federal stimulus funding from the program. Loan demand soon gobbled up that funding, and in December, the SBA received an additional $125 million (I blogged about that extension on Small Business Trends last month).

SBA Administrator Karen Mills told BizJournals.com that the SBA was able to immediately get that money distributed to small businesses. However, the extension runs out at the end of February. President Obama has now called for extending the recovery act provisions for the SBA through September 30, 2010. The House has passed legislation that includes $323 million in funding for the extension; the Senate still needs to act on the proposal.

If the extension passes, Mills says the additional funds will be used to increase the loan limit for its 7(a) and 504 loan programs from $2 million to $5 million, and to extend the 90 percent guarantee on the 7(a) loan program. The Recovery Act raised those guarantees temporarily; it also temporarily eliminated fees for 7(a) borrowers and 504 borrowers and lenders.

When you add it up, there has been nearly $1 billion in new SBA lending-but entrepreneurs don’t seem to be acknowledging it. In a recent online poll, e-newsletter SmartBrief on Entrepreneurs asked its readers, “Which federal initiative has done the most to help entrepreneurs in general (if not you personally)?”

Just 13.1 percent chose “SBA reforms;” 80.36 percent said “None.” Stimulus contracts were cited by just 5.36 percent, and ARC loans by a measly 1.19 percent. In his analysis of the situation, SmartBrief on Entrepreneurs contributing editor and long-time small business journalist Bob Jones notes, “Although the Small Business Administration has been scrambling for a year now to boost lending, the agency seems to get little credit from business owners.”


Rieva Lesonsky Rieva Lesonsky is a Columnist for Small Business Trends covering employment, retail trends and women in business. She is CEO of GrowBiz Media, a media company that helps entrepreneurs start and grow their businesses. Visit her blog, SmallBizDaily, to get the scoop on business trends and free TrendCast reports.

19 Reactions
  1. I wonder what type of population sampling was used by the poll?

    SBA loans are made through banks – and thus the client needs to fulfill the banks requirements to qualify. Banks are being very careful these days, so these loans are probably going to more established companies, better prepared owners and owners with better personal credit (the latter is an assumption – many business loans still require a check of the owners personal credit). This means that probably fewer small (or really small) businesses are getting them.

    Going back to my question, their results will show a lower SBA loan penetration if they only very small businesses (e.g. those with less than 5 or 10 employees).

    I have not seen the poll, so I am just speculating.

    Either way, very interesting post!


  2. While $1 billion seems like a lot, how many SMBs actually received loans through those programs? With so many SMBs out there, even that much money can’t possibly affect a high percentage of them. I think the low percentages are more likely due to this effect.

  3. I know several small business owners who were forced to take out personal loans and skipped mortgage payments on their personal residences to keep their businesses afloat because there wasn’t money for them.
    Now, it’s too late. The banks are cautious (and who can blame them?), and 1 billion is NOTHING compared to the bailout that the automakers and banks got.

  4. Great article. There are so many small businesses in need of capital that the stimulus money allocated is only a drop in the bucket, and new banking regulations still make it difficult to get a loan. Hope things change soon.

  5. Yea, I must be confused by the article (or the headline, at least) as well. If the money is all gone; then someone knows about it, cares about it, and has used it all up.

    What am I missing?

  6. Rieva,

    Thank you for yet another banking-SBA update.

    There is definitely a disconnect. Maybe the SBA needs to hire a better PR agency. (Or get one)

    I help folks get into franchise businesses. I’ve done it for coming up on ten years. I have never, until late last year, had a banker tell me that “We are not really looking at franchise start-ups as candidates for small business loans.” But that’s what happened. Twice.

    It seems that a very small number of existing businesses are getting credit lines and even some loans. But they are not hiring.

    The main problem is one that’s not being talked about enough;

    There’s a lot of bad paper on the books at a lot of banks, and until they get rid of it, nothing’s going to change.

    Plus, the banks are all super-paranoid now, and are over compensating by turning good business plans down.

    This isn’t rocket science. It’s just that no news organizations will talk about this real story. I guess it’s up to the small business blogging community to do so….

    The Franchise King

  7. This is all just a chapter in a long story yet to be told. The SBA appears to be trying to get more money into the hands of small business owners. The problem is, there seems to be a reluctance to lend. But it’s all cyclical, and I believe money will start to flow again, and Joel, I think when it starts, it will likely go to aspiring franchisees first.

  8. @Joel –

    I also think that the SBA offers a guarantee to the bank (90%), rather than actual funds/money to lend.

    This goes to *emphasize* your point because the bank still needs to get the funding for the loans themselves (through deposits, commercial paper, super preferreds, etc). And thanks to all the bad paper that they do hold, they have to be very very careful with their ratios, which also restricts lending.


  9. “Banks and other lending institutions offer a number of SBA guaranteed loan programs to assist small businesses. While SBA itself does not make loans, it does guarantee loans made to small businesses by private and other institutions.

    Below is an overview of SBA’s guaranteed loan programs. For more information, click on the name of the program.” Taken form the SBA web site.

    The banks make the loans like Marco said and until the banks loosen up credit, the smaller start ups and existing businesses, in reality the microbusinesses will not see an increase in available loans.

  10. Rieva,

    Thank you for giving me hope. I “hope” you’re right!


    It’s true. Lots of folks think that the SBA is an actual bank. It is kind of scary that even with almost a full guarantee from the SBA, banks STILL aren’t too interested in lending to start-ups-even franchise business start-ups.

    The Franchise King

  11. I think they’re asking the wrong group of people.

    There’s a big difference between small business owners and business “entrepreneurs” which to me – implies “start ups” and “venture capitalist”. Maybe they should talk with established businesses who are the ones who actually use the SBA program. Most of them would not be in business had it not been for the SBA.

  12. It’s true that banks are being very cautious in making credit decisions which is the result of several factors, most of which have been discussed here. One has yet to be mentioned here and that is banks are afraid of the OCC, the regulatory agency that controls their rating and ultimately what they pay to the FDIC to insure their deposits. The OCC is being overly critical on banks and their lending practices. I personally believe this is the single most damaging aspect to the flow of credit to small businesses. Ask any bank President or Chief Credit Officer and they’ll agree that even if a deal makes sense, if there is any concern as to what the OCC will think of the deal they won’t touch the deal. The government is talking out of both sides of their mouth. Blaming banks for not lending to small businesses but then tying their hands with the OCC’s aggressive oversight. That’s the real story. It’s time to let community bankers do what they do best which is getting to know their borrowers and make credit decisions based on what is best for the bank, the borrower, and the community. In this economy those are not easy decisions to make but they are best made on a deal by deal basis, by local bankers…not by OCC regulators.

  13. Very informative post and comments.. Thanks…

  14. Congress, specifically the Senate, needs to hurry up and pass the legislation before we run out of money next week!

  15. Rieva,

    I have been in the SBA lending business for a long time as both a lender and now as a packager/broker. The biggest trend I am seeing is the entrance of small community banks into SBA lending. On the list of top 25 banks in Georgia that made a 7a loan (www.sba.gov/ga), only three are what I would consider a regional or national lender. The rest are small community banks and I would suggest that if you are looking for an SBA loan that you visit the SBA site for your state, obtain the list of lenders and make phone calls until you find a lender that is interested in your industry, the sized and type loan you are seeking and that make loans in your area. Once you have that refined list, then put together a loan package and go meet with them. Good lenders are out there and need to make loans to survive. You just have to find them.

    As you know the SBA program has always been under publicized and under rated. It is a great program and the 90% g’tee and waiving of fees makes it even better.

    As always, thank you for bringing light to this subject.

  16. The aid package included tax breaks, new incentives, and an attempt to expand credit through a lending program that utilizes local banks, and with 59 supporters, the Democratic majority only needed one GOP vote to overcome yet another Republican filibuster.

  17. I can tell you from personal experience that all that so called SBA money is going to a select few and almost impossible to get.

    When the economy tanked all our funding sources dried up overnight leaving our business on the verge of collape. I went to my bank who we have dealt with for 12 years to see what stimulus money. I was told the only SBA money available was tied to adding employees and furthermore to get that money, we also must present a new five year business plan which could show significant increases in sales if we recieved this money and just how many employees we would hire to hit those numbers.

    Those increases must also be tied to either expansion of existing business or in our case products we already produce or we would have to prove we had prior experience with. We were also asked to provide either signed contracts or committments from buyers or a letter of intent from clients stating they would purchase these items from us.

    The bottom line, SBA money used to be reasonable easy to access and a good way for small business to grow, however; those days (like everything elese) are gone!