Possible Continuation of the SBA’s High Guarantees
Recently we discussed the possibility of SBA lending becoming more difficult.
The $375 million appropriated to the SBA for decreased loan origination fees and an increased loan guarantee of 90% was the foundation for an amazingly successful program. In fact, the program was so successful that its subsidies depleted three months earlier than forecasted. Since February 2009, the initial $375 million was instrumental in originating over 37,000 SBA loans comprised of over $14 billion.
As of November 23, the loan guarantee rate decreased to 85% for loans under $150,000, and to 75% for loans over $150,000. Reduced guarantee rates will result in a greater exposure to potential loan losses for banking institutions. Most likely, this will diminish lending activity to small businesses as well. Small business might have to seek funding elsewhere.
The Obama administration has proposed a seamless continuance of the program through an additional $100 million appropriation to the SBA program, intended to last until mid-February 2010.
Nydia Valasquez, Chairwoman of the House Small Business Committee, and Mary Landrieu, Chairwoman of the Senate Small Business Committee, are both working to approve that proposal. However, the Congressional schedule is filled health care discussions and other issues. Therefore, the SBA appropriation might have difficulty gaining needed attention before the end of the year.
Dave Von Holten
Co-Founder
Business Credit Services, Inc.
