Recent data shows that the Small Business Administration flagship loan program, the 7(a) loan program, has made 50% fewer loans this year over last. When commercial banks are reluctant to take a risk on a conventional business loan, they often will make an SBA 7(a) loan instead. The SBA guarantees a large portion of the loan with the originating commercial bank assuming a small portion of the risk. In today’s lending climate, commercial banks appear to be reluctant to even make SBA guaranteed loans, which are typically the last resort loans available to business borrowers.
This morning, October 20, 2008, Senator John Kerry wrote the White House a letter indicating his frustration with the lack of movement by the SBA to lessen the credit crisis for its borrowers.
There are many things the SBA can do to assist small businesses as they were chartered to do. They don’t need congressional approval to do many of them; however the Bush administration must support any changes in the SBA’s operating programs. For example, they can institute a blanket three month payment deferral for any borrower who asks for it. That action alone would help SBA borrowers instantly have some significant additional working capital. Working capital is at an all time low in small businesses today and it is how businesses make payroll, buy inventory and pay for other current liabilities.
Disaster is looming in many small businesses that don’t have access to any type of credit, or whose banks have decreased or called their working capital lines of credit. After September 11, the SBA provided disaster relief loans to businesses all across the US that were affected by disaster, so there is precedent for the SBA to do the same for businesses suffering from the current economy. When hurricanes or other natural disasters affect communities, this is one way the Federal government assists businesses.
On Friday, I spent some time trying to research an answer for a small business owner who left a question for my Ask the Expert podcast series. The question was how a small business owner could obtain a three month deferral on their loan payments. I spoke with a very helpful public information officer in the local SBA district where my caller’s question originated. She told me that on Thursday the SBA administrator announced that they were working out the final details of an automatic deferral program. At her suggestion, I called the SBA’s main public information officer in
When I get accurate information that I can pass on, I will post it immediately.
Sam Thacker is a partner in Austin Texas based Business Finance Solutions.
You may contact Sam directly at: firstname.lastname@example.org
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EXTRA: If you have questions for Sam regarding business financing, the credit market, and similar issues, please send an e-mail. Your questions will be recorded and Sam will answer the best ones in his Ask the Expert podcast show.