Lackluster SBA Lending Should Get Boost from Gov’t Initiative

The federal government’s plan should give Small Business Administration lending to businesses a boost — or at least any program that aids the SBA’s lackluster credit initiatives should be viewed as a positive.

From the Treasury Department:

As another part of the Consumer and Business Lending Initiative, the Treasury Department will – by the end of March – begin making direct purchases of securities backed by SBA loans to get the credit market moving again, and it will stand ready to purchase new securities to ensure that community banks and credit unions feel confident in extending new loans to local businesses. These purchases, combined with higher loan guarantees and reduced fees, will help provide lenders with the confidence that they need to extend credit, knowing they both have a backstop against their risk and a source of liquidity. These measures will complement other steps the Administration is taking to help small businesses recover and grow, including several tax cuts under the Recovery Act.

SBA-backed lending has been way off since the credit crisis began. Through the end of 2008 — the most recent data available — SBA lending was down 47% year-over-year. And this after a down year in fiscal year 2008 (from Oct. 2007 to Oct. 2008).

Aspects of the Treasury’s plan:

* Purchase up to $15 billion in SBA-loan-backed securities;

* Purchase securities pooled from the SBA’s Community Development Loan Program;

* Temporarily raise guarantees to up to 90% in SBA’s 7(a) loan program, the government’s most popular small business credit product;

* Temporarily eliminate certain SBA loan fees to reduce the cost of capital; and

* Issue guidance for an expanded carryback provision as part of the Recovery Act’s tax-cut package for small businesses.

Will these initiatives work? Probably to some degree, but I would venture to guess that SBA originations for fiscal 2009 will still be far off 2008 results. I would think total loans made will fall into the 50,000 range.

Nearly 80,000 SBA loans were made in FY 2008.