SBA misses deadlines on stimulus programs

SBA LogoAuthor, Kent Hoover

(American City Business Journals) The Small Business Administration has implemented only two of the eight provisions that were included in the economic stimulus bill to boost lending to small firms.

On March 16, the SBA eliminated fees on the agency’s 7(a) and 504 loans, and increased the maximum government guarantee on 7(a) loans from 85 percent to90 percent. The actions have stimulated SBA lending; the agency is approving28 percent more loans each week than it was before the changes.

“We feel encouraged by these types of numbers,” said SBA spokesman Michael Stamler.

Year-to-date lending numbers, however, remain far below last year’s levels. Through April 17, the number of 7(a) loans made this fiscal year was down 55 percent, and 504 loans were down 47 percent. SBA’s fiscal year began Oct. 1.

Part of the reason for this decline was last fall’s collapse of the secondary market for SBA loans. Many lenders depend on selling their existing SBA loans on the secondary market in order to free up capital to make new loans.

In June, the agency plans to implement two programs that aim to revive the secondary market. The agency will make loans to broker-dealers who purchase the guaranteed portion of 7(a) loans from lenders, and then pool and sell them to investors. The agency also will guarantee pools of first-lien 504 loans sold on the secondary market.

In the 504 program, which is used to finance real estate and other fixed assets, a third-party lender provides 50 percent or more of the financing through a first lien mortgage. A nonprofit certified development company provides up to 40 percent of the financing through an SBA-guaranteed loan, and the borrower contributes at least 10 percent of the financing.

The American Recovery and Reinvestment Act called for the SBA to implement both of these secondary market provisions in March, but agency officials told the Government Accountability Office (GAO) that wasn’t possible because creating regulations for new programs like these is complicated and time-consuming. The GAO report also noted the SBA is hampered by lack of sufficient staff.

Judging the effectiveness of the SBA’s programs will be difficult because of related efforts by the Treasury Department and the Federal Reserve to boost the secondary market for SBA loans. The Treasury Department announced plans March 16 to purchase up to $15 billion in SBA-backed securities, and the Fed has created a loan program designed to encourage private-sector investors to purchase these securities. So far, however, no investors have used the Fed program to buy SBA-backed securities.

The SBA also missed its deadline for creating a new temporary loan program that would provide up to $35,000 to small businesses that are having trouble making payments on existing loans. SBA Administrator Karen Mills, who was confirmed by the Senate April 3, told senators that implementing this zero-interest, deferred-payment loan program would be her “absolute first priority.”

Stamler said these “business stabilization” loans will become available sometime in May.

In an April 15 letter to the GAO, Mills said SBA’s senior managers are working to implement the agency’s economic stimulus programs “with both urgency andappropriate care.”

“The need to act with speed is being balanced with the need to assure that significant risks to the agency that might arise through Recovery Act projects are systematically and effectively identified, evaluated and addressed where appropriate,” Mills wrote. “In doing so, we believe we are fulfilling our responsibility to small businesses, to our lending partners, and to the taxpayers.”

Rep. Nydia Velazquez, D-N.Y., who chairs the House Small Business Committee, said the SBA should implement the new programs swiftly.


Hoover is Washington bureau chief for American City Business Journals.

  1. Hank Wilfong Jr. said:

    It’s not surprising that the SBA has missed its responsibilities as relates to the Stimulus program. They (SBA) are woefully lacking in meeting their responsibilities in a number of areas. They consistently fail to show good faith, by simply failing to show up and some events where we “set the table” for them.

    Instead, SBA shows up at places and talks about us, rather than showing up where we are, and talking WITH us.

    Is that likely to change under the new Administrator? We don’t know, if it will Change. But, we do know, it has NOT changed yet.

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