SBA Microloans Are Still Available to Small Businesses

Recently I have been receiving numerous thoughtful questions for my weekly podcast. At present, I am receiving far more questions than I can answer in the podcast format in a timely manner. The editorial management of Allbusiness suggested that I try and answer some of the questions here in my blog which I think is a great idea.

A listener from California who owns an online specialty woman’s clothing website asked the question, “I am interested in acquiring a loan thru the SBA. I'm not sure if this is still an option during this financial meltdown. Any advice??”

The answer to our podcast listener’s question is one that may change rapidly during the next few months after the President-Elect Obama takes office.

Currently there is not much sign that bank SBA lenders are loaning much money through the 7(a) program. 7(a) loans are typically larger and are used to buy businesses, equipment, inventory, and other hard assets. Currently the fees are step for 7(a) borrowers. The limit is $2 million for the SBA guaranteed portion of the loan. Lenders all over the country set their own credit standards for these loans and there is evidence that the number of 7(a) loans is significantly less this year over last, presumably because of the credit tightening on main street.

If a business like an online business with little infrastructure can get by with an SBA microloan, than there is a much higher chance of succeeding in getting credit. The maximum amount of an SBA microloan is $35,000. For a business that can put this amount of money to good use, there are plenty of lenders making these loans.

If you consider an SBA microloan, my suggestion is to do the following. Call your local SBA district office. Speak to either the Lead Lender Relations Specialist or a Business Development Specialist. Ask them who the five lenders are in your district that are making the most microloans. Then contact each of them. The chances are one or more of the lenders will be credit unions. In today’s rough credit climate, credit unions don’t seem to be paralyzed like banks are. I might contact the credit unions on the list first. I suspect that one of the five will give a yes answer.

If your business needs more than a microloan can provide, I would ask the question of the SBA district office person you contact who the five top 7(a) program lenders are in the district and I would make contact with them.

Based on my conversation with the SBA’s Associate Administrator for SBA's Office of Capital Access, Eric Zarnikow several weeks ago, I don’t think there will be any creative changes to SBA lending programs until after President Elect Obama takes over January 20, 2009 as the lame duck SBA administration isn’t likely to announce any new programs or take proactive measures to encourage banks to make more SBA loans.

EXTRA: If you have questions for Sam regarding business financing, the credit market, and similar issues, please call 1-877-49-EXPERT. Your questions will be recorded and Sam will answer the best ones in his Ask the Expert podcast show.