SBA lending program going strong

The Small Business Administration released their results for the first 6 months of FY05 and Demand for SBA-Backed Loans Maintains Record Pace Through the Second Quarter.  $16 Billion of funding through the 7(a) and $5 Billion through the 504 (Certified Development Company) programs are available for the year.  Also this year, the SBA was able to raise the maximum loan guarantee from $1 million to $1.5 million without additional funding through imposition of fees collected from borrowers and lenders.

Reflecting the economic expansion, American small businesses continued borrowing to start and expand their companies over the first six months of the current fiscal year, securing backing from the U.S. Small Business Administration on 27 percent more loans than in the same period a year ago.

In the first half of FY 2005, which began on Oct. 1, 2004, the SBA, through its private sector lending partners, approved 46,603 loans totaling $6.98 billion under its flagship 7(a) guaranteed loan program, compared to 36,646 loans worth $5.67 billion in the same period a year earlier, and 29,342 loans worth $4.85 billion two years ago.

“The trends we saw at the end of the first quarter are continuing and in fact, we’re doing even better,” said SBA Administrator Hector V. Barreto.  “We had a record year last fiscal year and we’re on track to have another one this year.  These numbers also demonstrate continued confidence on the part of the American entrepreneurs who contribute to economic growth and job creation. 

Lending by the SBA is tracking the improvements in the economy.  And this article from Fortune.com indicates that in the US many small enterprises are discovering that Microloans Can Make a Big Difference.  There are many anecdotes about entrepreneurs starting enterprises on a shoestring and microloans are one viable alternative for those who cannot draw on friends and family for seed funds or lack collateral or credit worthiness to apply to traditional lenders. The loans are typically $25 - 30,000 and borrowers are judged not on their credit scores or tax records but more informally.  The 600+ microloan programs which funnel federal, state, local and private money usually through community organizations are not a substitute for SBA or banks - they are intended for a different class of borrowers.  But they serve the same critical function for entrepreneurs - providing capital to those who want to own and operate a business.

In the U.S., state and local programs make so-called microloans available, typically to small-business owners who are unable to get traditional loans from banks either because they have poor credit ratings or no credit history at all. About 500 community-based microlenders and a handful of state microlending programs make loans available—most for several thousand dollars—to these higher risk borrowers. These loans are riskier, so the interest rates are higher than those on conventional ones.

The fate of federal funding of microloans is subject to the vagaries of the budgeting process.  The administration has cut money for microloans from the proposed FY06 budget but the Senate earmarked $78 Million for microloans above what was proposed for the SBA.  States, regions and communities have stepped up their efforts recently with microloan programs so any loss of federal funds is somewhat mitigated.