As published in Scotsman Guide's Commercial Edition, December 2009.
This past October, eight months after signing the American Recovery and Reinvestment Act (aka, the Recovery Act), President Barack Obama announced plans to boost the economy and further encourage lending to small businesses. Part of his plan: Increase the maximum loan limit for U.S. Small Business Administration (SBA) loan programs. Congress spent some of the fall considering eight bills aimed at updating and improving the SBA's capital-access programs. Eric Zarnikow, SBA's associate administrator for capital access, talks about how small businesses have benefited from government programs this past year and what they should consider as they seek loans.
How has the Recovery Act helped SBA loan programs and small businesses?
We felt that its provisions really hit the mark for our programs. We got the ability to reduce or eliminate upfront fees in our 7(a) and 504 programs. In our 7(a) program, we also got the authority to guarantee up to 90 percent of loans. If you look at the period immediately prior to the Recovery Act passing — from the beginning of the calendar year to mid-February — and you look at our weekly loan volume since the act was passed, our loan volume has increased more than 70 percent for our 7(a) and 504 programs combined.
Commercial loan defaults are expected to increase in the next few years as an increasing number of commercial loans come due. Why do you see the proposed increase in 7(a) and 504 loan limits as necessary to help small businesses?
We have heard from lenders in the marketplace and from small businesses that there is a need for higher loan limits. As we look at the gaps in the marketplace, we've seen that a growing percentage of our loans are [being] made at a larger loan size.
How does the SBA help small businesses while also ensuring that they fit within the loan programs' parameters?
Our mission is to expand access to capital to small businesses that wouldn't otherwise have that access. Within our program, we have what we call a credit-elsewhere test [through which] the lender to the small business represents to us that they would not have made the loan on the same terms without our partial government guarantee.
What is the biggest concern you're hearing among SBA's lending partners?
Right now, our lending partners are concerned about managing risk. They want to be sure that the loans that they're making are going to be repaid, and there's been a continuing tightening of credit standards.
How can brokers best help their small-business clients when seeking an SBA loan?
For brokers working with small businesses, making sure that the businesses have a well-thought-out business plan is a great first step.
Ivanna C. Sukkar is senior associate editor at Scotsman Guide. Reach her at (800) 297-6061 or firstname.lastname@example.org.