The end of the government stimulus support for SBA loans in May resulted in a huge decline in small business lending in June and so far in July. An article in the New York Times (“S.B.A. Lending Plunged in June”) detailed how lending dropped by two-thirds from May to June, resulting in one of the worst months in years for SBA loans. Banks give a number of reasons for this, but most center around the 90% guarantee that the program allowed the SBA to provide, compared to the usual 75% guarantee.
For borrowers, this increased guarantee allowed them to get into a loan with less up-front collateral, important in this time of major declines in value of the property many of them use for that security. Lenders appreciated the higher guarantee because it allowed them to make loans with less of their own money at risk, and banks appreciate less risk, particularly right now with regulators peering over their shoulders. There is one other reason for the banks’ preference for the 90% guarantee that many people don’t know about - they make money. As Jerry Chautin points out in an article in the Huffington Post, small community banks, which make many of these SBA loans, sell the guaranteed portion of the loan to bigger investors and receive a 10% premium that is immediately credited to the banks balance sheet.. A 90% guarantee on a million dollar loan means $900,000 available to sell compared to $750,000 with a traditional guarantee.
While much of the news about SBA loans has been poor, there are some rays of light gleaming through the darkness. It is looking like the Senate may be close to passing an extension to the SBA stimulus program this week, which would renew the 90% loan guarantee. And one surprising bit of good news is the success of the pilot Community Express Program. This loan program provides loans of $5000 to $25,000 to businesses that only need small amounts of capital. The loans are guaranteed to 85% and there is no collateral requirement. In certain SBA-designated areas, such as low-income neighborhoods, these loans can be increased up to $50,000. The biggest boost to the program was the partnering of Sam’s Club with lender Superior Financial Group. According to the Huffington Post article, the demand has exceeded expectations, with over 2000 applications coming in during one week through Sam’s Club.
If your business is thinking about one of these smaller loans, SBA Loan Store can provide you with the paperwork you need to take to Sam’s Club or any lender that works with the Community Express Program. We can also answer questions that you may have on this or other SBA loan programs. And as always, we are experienced in working with small businesses looking for the traditional 7(a) and 504 SBA loans. You can contact us at 888-666-9722 or visit SBALoanStore.com.
This is supposedly good news. I hope many would be encouraged to be an entrepreneur with this.
Posted by: Government Small Business Loans | 09/15/2010 at 08:45 AM
It's essential to the growth of a small business today to get the proper loans. Businesses looking to expand or move their facilities should consider checking out commercial building finance options to help them make the change.
Posted by: Apex Mortgage | 11/29/2010 at 08:49 AM
Ah yes, the SBA loans! I will always be not surprised if there were good news or bad news pertainig SBA loans. The good news will seem to delight almost everyone but for how long? The economy is always unstable and everything will change in just a zap! And as for the bad news, o yeah, what do you expect? Just a slight decline is always a bad news for everybody!
Posted by: top cd rates | 12/26/2010 at 07:14 PM
Craig,
Has SBA lending picked up much since July 2010?
Posted by: Title Loans | 03/10/2011 at 01:26 PM
The answer is yes SBA loans have picked up year over year and since mid 2010. I can't tell you the exact number but they are up year over year since 2009. More than the increase in volume is the number of banks asking to do deals and offering SBA loans for start ups, expansion, business purchases and commercial real estate loans. It is not material to quantify the number of loans or volume at this point in time. You can get that from SBA or Google SBA loan volumes by office, state or national basis. Only thing important for a borrower is to get started with the application and find a lender. There is nothing in the statistics that should concern the borrower. Getting the application done is JOB ONE.
Craig
Posted by: Craig G. Francis | 03/16/2011 at 05:46 PM