On Wednesday, President Obama made a short speech announcing several initiatives regarding two popular SBA lending programs.
He said he was asking congress to raise the lending cap on the SBA flagship 7(a) loan Program and the equally popular 504 program from $2 million to $5 million. He also urges congress to raise the SBA microloan limit from $35,000 to $50,000.
The 7(a) program is used by bank SBA lenders to provide loans to small businesses that include most nearly every type of collateral, from inventory to real estate. The 504 program is a lending program that allows small businesses to borrow money for real estate for up to 20 years. Community Development Corporation (CDC) lenders participate with caring the 504 real estate notes.
While raising the loan limits may help a few borrowers, what will help the
Temporary program that allows the
The second big temporary SBA program modification was increasing the SBA loan guarantee provided to participating banks from about 75% to as high as 90%. That means that an SBA lender today only has a 10% exposure for loans it originates under the 7(a) program. More than any other government actions, this one has caused many banks involved in the SBA program to more aggressively loan money to small businesses.
The largest SBA lender in the country by size of loans is currently Wells Fargo. Their SBA lending staff is so overloaded that their lenders are hard pressed to accept any new packages right now. According to several sources at Wells Fargo, they are working overtime to get the 7(a) loans in their pipeline completed and closed before December 31, 2009.
If congress acts quickly to pass the legislation to raise the loan limits of the two most popular SBA loan programs, they should add provisions to extend the U.S. Treasury’s payment of borrower loan guarantees as well as the higher loan guarantee to the banks through the end of 2010.
It is small businesses that will create the jobs that will help end the worst of the recession and if congress doesn’t act fast to pass this important legislation, it will be the whole country that suffers.
Sam Thacker is a partner in Austin Texas based Business Finance Solutions.
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