SBA readies new loan program for troubled Businesses

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(Business Courier)

Many businesses that might need help the most aren’t eligible” –  Business Borrowers Alliance

A top Small Business Administration official said the agency is “working as quickly as possible” to implement a new bridge loan program created by the economic stimulus legislation.

Through this temporary program, small businesses that are having trouble making payments on existing debt will be eligible to apply for loans of up to $35,000. These can be used to refinance principal and interest on existing loans. The SBA will pay the interest on the loan, and small businesses will have a year before starting to repay it.

These business stabilization loans will be offered through the SBA’s network of private-sector lenders. The agency will guarantee 100 percent of the amount of the loan.

Eric Zarnikow, who heads the SBA’s Office of Capital Access, said the agency still is working out the details of the program.

“It is a brand new program that needs to be built from scratch, including developing policy and modifying computer systems, so it will take a little bit longer,” he said.

The new loans can’t be used to refinance existing SBA loans – an exception that dismayed some advocates. This means many businesses that might need help the most aren’t eligible, according to the Business Borrowers Alliance, a Rockaway, N.J., firm that works with small businesses.

The ban on using the new loans to refinance SBA loans was included in the stimulus legislation at the request of the Congressional Budget Office in order to meet budgeting rules, according to a staff member at the House Small Business Committee. Businesses with SBA loans can use the new business stabilization loans to refinance other debt, however, including business-related credit card debt.

Meanwhile, lending through the SBA’s regular loan programs is expected to pick up dramatically now that the agency has eliminated fees and temporarily increased its guarantee on 7(a) loans to 90 percent.

The SBA implemented these provisions of the stimulus bill March 16, the same day the Treasury Department announced plans to purchase $15 billion in securities backed by SBA loans. This step should unthaw the secondary market for SBA loans.

“We should start to see a volume increase rather quickly,” said Tony Wilkinson, president of the National Association of Government Guaranteed Lenders.

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1 comment
  1. Hallelujah! So many small businesses have been crying out for bridge loans, just enough to get them through this tough spell. This is really a breath of fresh air. And it will be so much better for the economy as a whole to save existing businesses, rather than force existing businesses under, then start up fresh with new businesses. This is really a win-win proposition for all.

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