SBA running out of low cost loans to businesses

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Many small businesses are struggling and relying on SBA loans to make ends meet. Image from Flickr.

The Small Business Administration has been charged with helping businesses weather the recession, and money is running out. The 7(a) lending program provides loans, personal and large, to small businesses around the country. The program, which was funded by the American Recovery and Reinvestment Act, is currently in a holding pattern, waiting for more money.

How the SBA provides low cost loans

The Small Business Administration itself does not give instant money to business owners. Instead, the government agency backs up loans made by banks. With the SBA “insurance policy” against default in place, banks are much more willing to act as money lenders to often cash-strapped small businesses. The stimulus package authorized the SBA to waive fees and guarantee up to 90 percent of a loan’s value.

The effect of SBA loans

Small businesses are often forced to rely on credit and loan lenders to keep their businesses going. Over just a three-month period of April, May and June, the SBA lent out $3 billion over 12,123 loans. Compared to the same quarter of 2009, that is 21 percent more emergency money for cash-strapped businesses. The program, however, is still waiting for re-authorization, which is leaving millions of dollars of loans in limbo.

The SBA loan queue

Since the official authorization for SBA loans expired in May, the agency has been forced to queue requests for loans. There are currently 419 borrowers waiting for more than $123 million in SBA-guaranteed funding. Because these SBA loans are often one of the very few types of credit available to these businesses, the agency is scrambling to help them find financing. Given the length of the recession thus far and the fact that the economy is not yet growing at a steady pace, it is almost for certain that programs such as the SBA 7(a) program will need to continue providing support for small business.

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