SBA loan numbers decline in fiscal 2008 (no surprise there)

Posted on | October 30, 2008 | Comments Off

WASHINGTON – A “perfect storm” of tightened credit by commercial lenders, declining creditworthiness, and reduced demand for loans from small business borrowers uncertain about the future has led to a substantial decline in the number of small business loans guaranteed by the U.S. Small Business Administration during FY 2008, SBA Acting Administrator Sandy K. Baruah said today.

Okay, so now it’s official. We’ve been hearing about the decline in SBA loan numbers since February’s budget hearings — along with tenacious assertions on the part of SBA officials that the credit crunch was not the culprit so much as declining loan demand.

And it’s likely that it was a bit of both. Small business owners who are expecting declining sales are unlikely to want to dash out and take out loans just when they expect to be having cash flow issues. At the same time, former SBA Administrator Steve Preston did admit during a Senate hearing earlier this year that some of the nation’s most prolific 7(a) lenders were (coincidentally) up to their eyebrows in the secondary mortgage market that has, as we all know, more recently blown up in everybody’s faces and that they were pulling back and retrenching.

It also didn’t help that the SBA had lost about 400 lenders over the last several years, especially a lot of small rural and community banks that were having trouble dealing with SBA paperwork since they got rid of the LowDoc program. Now, the agency is trying a new and improved version of LowDoc, called Rural Lender Advantage, that preserves the reduced documentation but adds in enough risk management features to keep defaults rates lower than they were with LowDoc. At least, that’s the idea.

Specifically, the SBA went from almost 100,000 7(a) and 504 loans in fiscal 2007 to almost 70,000 7(a) and 504 loans in fiscal 2008, a 30% decline. Dollar volume fell from $14.3 billion to $12.7 billion during the same period.

It seem pretty clear that many small business owners feel right now is not the best time to expand.

In case you’re wondering, the SBA is not sitting on its haunches; rather, the agency announcement reminds us all of the steps they are taking to increase loan volume and get back to the annual ritual of setting a new lending record every fiscal year:

• Working to improve the liquidity of SBA loans on the secondary market and exploring strategies to increase access to capital by small businesses.

• The accelerated launch of Small Rural Lender Advantage ahead of schedule, which targets smaller financial institutions – like community banks – and institutions with low SBA volume.

• Encouraging SBA’s lending partners to use their authority to work with qualified borrowers on a case-by-case basis and defer SBA guaranteed loan payments by up to three months.

• Reminding lenders and borrowers that interest rates have fallen with the prime rate, and are now about 40 percent less than a year ago.

Of course, there is little the SBA can do about declining sales expectations and a generally slumping economy. And, with such a small segment of the small business financing market at its disposal, it’s tough to say how much of an impact these steps will have when all is said and done.

But, if nothing else, perhaps these steps will appease some of the folks on Capital Hill who have been screaming at the agency lately to “Do something!” That alone might very well be worth something to them.


Email This Post Email This Post Print This Post Print This Post

Bookmark and Share
Category: Politics, The Economy
Tags: > > > >


Comments

Comments are closed.

Subscribe To The Journal Blog

Subscribe to The Journal Blog via RSS

Or subscribe by email:



Meet The Journal Blogger

Dawn Rivers Baker, microbusiness journalistDawn Rivers Baker, aka The Journal Blogger, is the editor and publisher of The MicroEnterprise Journal, and the self-proclaimed Socrates of the small business blogosphere. See her official bio to learn more.


Dawn is also a contributing blogger at:


featured on US News & World Report


Small Business Trends Expert

Contributor, OPEN Forum Blog

join the business.gov community logo

Connect with Dawn


View Dawn Rivers Baker's profile on LinkedIn


Facebook me!

Follow me on twitter

  • Daily Reads: Blogs

  • Daily Reads: News

    • Visit Our Sponsors

    Archives

    Categories

    Search