Sba Runs Out Of Gas On 7a And 504 Loans - Capital - Portfolio.com

Nov 23 2009 4:17pm EDT

It’s a blue Monday for small businesses and the lenders that make SBA loans.

The Small Business Administration no longer has enough economic stimulus funds to continue its 90 percent guarantee on its flagship 7(a) loans. It also will have to raise its fees on its 7(a) and 504 loans, which primarily finance real estate. As a result, beginning today, borrowers face a choice: They can be put on a waiting list to get the higher guarantee and lower fees on their loans if additional money becomes available; or they can apply for a regular SBA loan.

The higher guarantee helped bring 1,200 lenders back to the SBA’s loan programs, and the lower fees made the loans more affordable to borrowers. SBA lending, which had slowed to a crawl last fall and winter, rebounded as a result of these breaks. Through November 20, the number of 7(a) loans approved by the SBA this fiscal year, which began October 1, was up 80 percent over the same period a year earlier. Total dollar volume jumped 147 percent.

Those gains now are in jeopardy. Without the 90 percent guarantee, lenders may decide a small business is too risky. Without the reduced fees, small businesses may decide an SBA loan costs too much.

Tony Wilkinson, president and CEO of the National Association of Government Guaranteed Lenders, expects the volume of SBA lending to decline unless—and until—Congress and the Obama administration find money to resume these breaks.

“I suspect there will be a pretty good drop,” Wilkinson said.

“I really believe it’s going to fall dramatically,” said Scott Hauge, president of Small Business California.

That’s bad news for jobs. Small businesses, especially younger firms, create most of the new jobs in the United States. Banks have tightened credit standards for conventional business loans, making the SBA an even more important alternative for small businesses.

Obama administration officials and congressional leaders agree on this, and they agree that the 90 percent guarantee for 7(a) loans and the fee reductions should be extended, at least until February 17, 2010, when the authorization for these breaks expire.

Yet members of Congress are going home for Thanksgiving without acting on this priority. As a result, some small businesses aren’t going to get the credit they need. Others are going to pay more for their loans, giving them less money to hire people. Why did this happen?

“I wish I knew that,” Wilkinson said.

“From a small-business perspective, it’s all very frustrating,” Hauge said.

A mere $100 million would extend the higher guarantee and reduced fees until mid-February. That’s a lot cheaper than the billions of dollars that Congress just obligated by extending and expanding a tax credit for home purchases, but the housing industry apparently pulls more weight on Capitol Hill than small businesses in general do.

Plus, there is money lying around that could be used to restore these SBA loan enhancements. Congress could reprogram unused Troubled Asset Relief Program funds for this purpose, or cancel a little-used emergency bridge loan program for small businesses and apply the leftover money to its 7(a) and 504 loans.

Doing this will take leadership, however, and that’s been lacking on this issue so far.

Senator Mary Landrieu, who chairs the Senate Small Business and Entrepreneurship Committee, managed to secure at least $100 million in additional Medicaid funding for her home state of Louisiana in the health care reform bill, but the Democrat has failed to convince her colleagues to rescue the SBA’s loan programs.

On Monday, Landrieu said the same thing she’s been saying for a couple of weeks: She’s “working” on it.

That’s not good enough. Small businesses want action, ASAP.

Kent Hoover is the Washington bureau chief for bizjournals.