Recovery Act Stimulates Increase in SBA Loans

Changes under the American Recovery and Reinvestment Act to U.S. Small Business Administration loan programs led to a rebound in SBA-backed loans for small businesses and greater access to much-needed capital.

Since the Recovery Act was signed on Feb. 17, SBA has supported more than $11.3 billion in lending to small businesses through its two largest loan programs and seen its average weekly dollar volume increase by more than 60 percent in comparison to the weeks before the Recovery Act.  Additionally, the average number of loans approved per week has increased by more than 50 percent. The dollar volume for September 2009 ($1.9 billion) was the highest single-month total since August 2007.

“These numbers, along with our conversations with lenders and small business owners around the country, show that the Recovery Act hit the mark,” SBA Administrator Karen Mills said. “The Recovery Act was critical to unlocking the market and as a result we’ve helped put billions of dollars of much needed capital in the hands of small business owners during this tough economic time, and brought more than 1,200 lenders back into SBA’s loan programs.  With half the nation’s workforce either working for or owning a small business, these dollars played a critical role in driving economic recovery across the country.”

Karen Mills

As a result of the credit crunch, SBA lending saw a significant decline in the fall of 2008 and early 2009. For the seven weeks prior to the Recovery Act being signed, SBA’s average weekly dollar volume was $165 million.  The average weekly average since the Recovery Act was signed, through Sept. 25, was $275 million.  

Mills cited Recovery Act provisions that reduced fees on SBA loans and raised SBA guarantees to 90 percent, as well as actions that reinvigorated the secondary markets for SBA-guaranteed loans as especially helpful in improving access to SBA-backed credit. 

Overall, SBA loan approvals for the fiscal year amounted to a combined 50,829 loans (preliminary number) worth $13.1 billion under the 7(a) and 504 loan programs.  The comparable figures for fiscal year 2008, which ended just as the nation’s economy entered the financial crisis, were 78,317 and $17.96 billion.  

The dollar volume totals for SBA loans in fiscal year 2009, which ended Sept. 30, do not include loans made under the agency’s ARC, (America’s Recovery Capital) loan program.  Launched on June 15, the agency has approved 2,715 ARC loans worth more than $88 million as of September 29.  Thus far, nearly 740 lenders have made ARC loans, and the number of participating lenders is increasing by an average of about 50 per week.

For more information about these and other SBA programs, visit the SBA Web site at www.sba.gov, or contact your local SBA field office.  You can find contact information for your local SBA office at http://www.sba.gov/localresources/index.html .

Best Sources for Small Business Loans Focus of August 3 Economic Perspectives

Even during these turbulent times, many financial institutions are still making small business loans.  Learn about some of the best sources for small business loans on the August 3 edition of Economic Perspectives on KAZI 88.7 FM.  The guests will be Theresa Lee, chief lending officer for the Texas Mezzanine Fund (TMF), Jaime Noyola, director of lending for the PeopleFund, Cindy Solano, Lead Lender Relations Specialist for the San Antonio District Office of the U.S. Small Business Administration, and Michelle Frith, outreach and marketing coordinator for the City of Austin Small Business Development Program (SBDP).

Texas Mezzanine Fund

Founded in 1998, TMF is a statewide community development financial institution that provides financing for businesses located in distressed areas, minority-owned businesses, and small businesses that create jobs for low and moderate-income people. It makes loans from $50,000 – $500,000 in tandem with other financial institutions and up to “stand alone” loans up to $300,000.  

PeopleFund

Since 1995 PeopleFund has strive ed to promote lasting economic vitality for low-income people by implementing strategies that create jobs, provide safe and affordable homes, and promote good economic policy decisions for communities.  It provides loans and revolving lines of credit from $20,000 – $200,000.

Small Business Administration

 The San Antonio District Office of the SBA provides financial assistance, business counseling and training and government contracting help to small businesses that are located in its area of operation which covers 55 counties in central and southwest Texas including the cities of Austin and San Antonio.  The SBA ’s most popular loan program is the 7 (a) program which may guaranty up to 90 perccent of a loan for a participating lender.  The maximum loan eligible for guaranty is $2 million.

City of Austin Small Business Development Program

The City of Austin SBDP provides counseling and assistance to small businesses.  It is hosting the 6th annual Meet the Lender Business Loan Fair on August 6 3 p.m. – 7 p.m. at the Palmer Events Center, 900 Barton Springs Rd.  This is an opportunity to meet, network, and learn from area lenders about the loan process for your small business.

Increased Equity and Venture Capital Funding Available For Small Businesses through SBA

From the press office of the U.S. Small Business Administration

Small businesses that would otherwise have difficulty securing private equity or venture capital may find funding easier to get as a result of changes made as part of the American Recovery and Reinvestment Act to the U.S. Small Business Administration’s Small Business Investment Company program.

“The Recovery Act expands SBA’s venture capital program to increase the pool of investment funding available to the Small Business Investment Companies licensed by SBA,” said SBA Administrator Karen G. Mills. “We believe those companies will be better equipped by these changes to help sustain and grow small businesses for their next important growth steps.”

Karen Mills

SBICs are privately owned and managed venture capital firms which are licensed and regulated by SBA. SBICs use a combination of funds raised from private sources and money raised through the use of SBA guarantees to make equity and mezzanine capital investments in small businesses. There are approximately 338 SBICs with $17.4 billion in capital under management.

The changes made as part of the Recovery Act are:

• The Recovery Act makes SBICs eligible for greater SBA guaranteed funding and requires SBICs to invest 25 percent of their investment dollars into “smaller” businesses. Also, the amount of funding an SBIC may invest in a single small business is set at 10 percent of an SBIC’s total capital rather than the previous limit of 20 percent of an SBIC’s private capital only. This translates to an effective 50 percent increase in funding available to a single business by an SBIC.
• Maximum SBA funding levels to SBICs will increase up to three times the private capital raised by the SBIC, up to a maximum of $150 million for single SBICs, or up to $225 million for multiple SBICs that are under common control. The cap for all licensees was set at $137.1 million before the Recovery Act.
• These limits are even higher for SBICs that are licensed after October 1, 2009, that certify that at least 50 percent of their investments will be made in small businesses located in low-income areas, up to $175 million for single licensees and up to $250 million for jointly controlled multiple licensees.
• Changes made to the SBIC program under the Recovery Act are permanent.

Industry associations have commended SBA for these changes and SBA continues to encourage new SBICs to apply for licensing and actively participate in the program.

The SBIC program was created to stimulate the growth of America’s small businesses by supplementing the long-term debt and private-equity capital available to them. Since the SBIC program’s formation in 1958 through April 2009, it has invested approximately $56 billion in more than 106,000 small businesses in the United States. For more information about the SBA’s Investment Division and SBIC program, go to www.sba.gov/INV or call 1-800-U ASK SBA.

New Leader of U.S. Small Business Administration Testifies Before Senate Small Business Committee

L-R: Karen Mills and Senator Mary Landieu

Karen Mills was confirmed by the U.S. Senate by unanimous consent as the 23rd Administrator of the U.S. Small Business Administration on April 1.  Enclosed below is an excerpt from her statement to the Senate Small Business Committee on the day of her confirmation.  The Senate Small Business Committee is chaired by Louisiana Democratic Senator Mary Landrieu and its ranking member is Maine Republican Senator Olympia Snow.

Small business is the heart of the American economy. There are over twenty-six million small businesses in this country and they create 70 percent of the new jobs. This means that to find our way out of the current economic crisis, we have to find ways to help small businesses stay in operation and even expand.

There are at least two kinds of small businesses that are served by the Small Business Administration. The first are the small businesses on Main Street – the restaurants, the drycleaners, and the car repair operations –that are a part of our daily lives. These businesses depend on credit from the SBA’s 7a and 504 programs and advice from more than 14,000 SBA affiliated counseling centers.

The second type are the high growth, high impact businesses which have the potential to grow into the next American giants.

Did you know that Federal Express, Apple and Intel all were at one time supported by the SBA? Others include AOL, Ben and Jerry’s Ice Cream and UnderArmor – a company that makes high-performance sports clothing which my family purchases a great quantity of this time of year during lacrosse season – it was started not far from here in a basement in Georgetown.

These businesses all started out getting an SBA loan, a government contract or an SBIC investment. For all of these enterprises, from Main Street shops to the next potential Intel, we know one thing: if the SBA can help these small businesses grow and prosper, jobs will be created, and America will be able to compete anywhere in the world.

Today, however, small businesses face an uncertain future.  The recession has reduced demand for their goods and services. With the credit crisis, it is increasingly difficult for them to find financing for normal business activities and expansions.

Currently, loan guarantees from the SBA are down by over 50% from their levels a year ago. There are several causes of this decline—and they are inter-related: lower creditworthiness of borrowers, tighter lending standards, lack of liquidity in bank balance sheets, and a frozen secondary market for SBA guaranteed loans.

The Congress and this Committee deserve great praise for recognizing these problems and for incorporating important proactive measures for small business in the Recovery Act. This Act reduces fees to both borrowers and lenders, increases the guarantee percentage on SBA loans and works to unfreeze the secondary markets. In addition, many viable but struggling businesses will get a $35,000 lifeline to bridge them for 6 months of interest and principal payments—which the SBA will fully guarantee.

As you all know, on March 16th, the President committed $15 billion from the Troubled Asset Relief Program to be available to purchase SBA guaranteed paper in the secondary markets. This effort in conjunction with the SBA 90% guarantees and the fee reductions will go a long way to unlocking the credit small businesses need.

If confirmed, I pledge to work as a partner with this Committee to fully implement these important recovery programs.

Senators, today small businesses are suffering and the SBA has lacked the leadership and the resources to help them. These are problems we can fix.

If confirmed I will work on three important fronts:

First, the SBA must continue executing the plans in the Recovery Act and get capital flowing again through the core SBA loan programs.

Second, we must reinvigorate the Agency by attracting a strong and passionate leadership team and investing in the information technology the agency needs to operate.

Finally, we must – and I will – act as an advocate for small business across the administration. As Chair Landrieu and Ranking Member Snowe have suggested, I will coordinate with other Agencies, including Commerce, Labor and Energy, whose programs also affect small businesses.

To listen to Karen Mills’ tesimony before the U.S. Senate Small Business Committee click the following link: Karen Mills Testimony

Podcast: SBA Official Provides Information on Latest Steps to Increase Small Business Loans

The U.S. Small Business Administration’s Associate Administrator for Capital Access Eric Zarnikow revealed that the U.S. Treasury Department will commit up to $15 billion to help unlock the frozen credit markets by purchasing small business loan securities currently frozen on the secondary market in his interview on the March 16 edition of Economic Perspectives.  By purchasing these securities the SBA expects to jumpstart small business lending.  Zarnikow said the number of SBA loans this fiscal year has declined 50 percent compared to last year.

Eric Zarnikow

Zarnikow also discussed the benefits small businesses will receive as a result of the American Recovery and Reinvestment Act in the interview.  The Recovery Act contains a package of loan fee reductions, higher guarantees, new SBA programs, secondary market incentives, and enhancements to current SBA programs that are designed to unlock the credit markets and facilitate the economic recovery of the nation’s small businesses.

Among the key provisions being implemented this week to enhance SBA loans are the following:

• Temporary elimination of all borrower fees for SBA 7(a) loans and borrower and lender fess for SBA 504 loans until the end calendar year 2009 or until funds are exhausted
• Temporary increase of 7(a) loan guarantees up to 90 percent until the end calendar year 2009 or until funds are exhausted

Zarnikow will host a web chat on March 19, 12 p.m. – 1 p.m. Central Standard Time to provide small business owners an opportunity to obtain answers to their questions about how the Recovery Act will assist them.  Participants can join the live web chat by going online to www.sba.gov and clicking the “online Business Chat” icon.

To listen to the Economic Perspectives’ interview with Zarnikow, click here.

Stimulus Bill Enhances Small Business Lending Through SBA Funding

The American Recovery and Reinvestment Act contains a package of loan fee reductions, higher guarantees, new SBA programs, secondary market incentives, and enhancements to current SBA programs that will help unlock credit markets and begin economic recovery for the nation’s small business sector.

“The tax incentives and credit stimulus elements of the Recovery Act will truly help small business owners affected by the credit crunch, and will provide financing opportunities to help them create new jobs in their communities,” said Acting SBA Administrator Darryl K. Hairston. “There’s a lot to digest in the legislation, and SBA has established teams to tackle a wide variety of policy decisions, system modifications, regulatory changes, legal requirements, and new program launches authorized by the President and Congress,” said Hairston.

 

The bill provides $730 million to SBA and makes changes to the agency’s lending and investment programs so that they can reach more small businesses that need help. The funding includes:

·         $375 million for temporary fee reductions or eliminations on SBA loans and increased SBA guaranteed shares, up to 90 percent for certain loans

·         $255 million for a new loan program to help small businesses meet existing debt payments

·         $30 million for expanding SBA’s Microloan program, enough to finance up to $50 million in new lending and $24 million in technical assistance grants to microlenders

·         $20 million for technology systems to streamline SBA’s lending and oversight processes

·         $15 million for expanding SBA’s Surety Bond Guarantee program

·         $25 million for staffing up to meet demands for new programs

·         $10 million for the Office of Inspector General

 

The bill also authorizes refinancing for certain SBA loans so borrowers can expand their businesses on favorable terms, and expands leverage capability for Small Business Investment Companies.

 

“We are going to be part of the solution, and this bill gives us specific tools to make it easier and less expensive for small businesses to get loans, give lenders new incentives to make more loans, and help restore healthy SBA secondary markets to boost liquidity,” Hairston said, noting also that more details on implementation will be coming over the next few weeks.

 

The stimulus bill takes a comprehensive approach and attacks several problems facing small businesses at once by reducing fees, guaranteeing a greater share of certain loans, expanding capacity in the Microloan program, providing new loans to help small businesses keep their doors open through economic hardship, as well as new mechanisms to help unfreeze the secondary markets for SBA-backed loans.

 

Declines in SBA lending volume last year, which are continuing in FY 2009, reflect problems in the broader credit markets, and present hurdles to small businesses that are seeking credit in the current economy. The financial crisis has created a variety of conditions that impact small businesses, including a lack of liquidity in the banking system, a reluctance of many lenders to extend new loans, tightened credit standards, weaker finances at small businesses, and uncertainty about taking on new debt on the part of many entrepreneurs.

 

The Recovery Act addresses small businesses’ lending problems, and addresses key investment and contracting issues. The bill helps Small Business Investment Companies better leverage investment capital to reach more small companies. The bill also increases the current contract limit for SBA’s Surety Bond Guarantee program, which will help small businesses compete for contracts.

SBA Will Answer Questions About Credit Crunch Online January 15: Podcast of EP Interview Available at End of Article

By Hopeton Hay

On January 15 the U.S. Small Business Administration’s Web chat series starts the new year with “How Small Businesses Can Deal with the Credit Crunch.”  This Web chat features SBA Associate Administrator for Capital Access Eric Zarnikow who will help small business owners and entrepreneurs get answers to their questions about credit and borrowing and other resources to help them access credit from 12 p.m. to 1 p.m. Central Standard Time.  Participants can join the live Web chat by going online to www.sba.gov , and clicking “Online Business Chat.” Web chat participants may post questions for Zarnikow before the January 15th chat by visiting http://app1.sba.gov/livemeeting/jan09/index.cfm, and posting their questions online.

Eric Zarnikow

“Its really an opportunity for them to ask questions and get advice on what they might want to do to access credit during the capital crunch,” says Zarnikow.

The Web chat addressing the credit crunch could not come at a more propitous time. There was a record decline in the number of SBA loans between fiscal year 2007 and fiscal year 2008.

“What we saw is the loans for the last fiscal year were down about 30 percent in numbers but only about 13 percent in the dollar amount,” explains Zarnikow.

While banks have tightened their credit standards, Zarnikow says the feedback received from banks indicates there are other factors affecting loan volume.  Because of the recession entrepreneurs are less willing to take on debt to either expand or start or acquire a small business.  Zarnikow says also that banks reported that borrowers generally are less credit worthy than they might have been a year ago.

“The small business may not be doing as well or their personal financial situation might not be as strong,” says Zarnikow.

Zarnikow recommends the following strategies for small business owners to improve their chances of obtaining an SBA loan.

1. Make sure you have a well thought out business plan
2. Talk to as many lenders as possible,
3. Talk to other small businesses about what lender they may use and get a referral or recommendation if possible

To listen to the 8 minute Economic Perspectives interview with Zarnikow click here.

Obama Announces Choice to Lead SBA

With the swiftness of his announcement of Karen Wells as his choice to be the next Administrator of the U.S. Small Business Administration on December 19, President-elect Barack Obama has clearly indicated the importance of that position to his administration.  He has named his nominee to be the SBA Administrator much earlier than the Clinton and Bush Administrations did when first elected, who made their choices known in March 1993 and February 2001 respectively.

Preident-Elect Obama and Karen Mills

More important than the early selection of his nominee for SBA Administrator is who recommended Mills, Maine Senator Olympia Snowe, the former Chairman and current Ranking Member of the Senate Committee on Small Business and Entrepreneurship.  Snowe had sent a letter to Obama on December 8 asking that the Adminstrator position be re-elevated to Cabinet-level status.

In her press statement congratulating Mills for being nominated for the SBA position Snowe said, “…I hope President-elect Obama will carefully consider my proposal to re-elevate the SBA Administrator to Cabinet-level status — as under the Clinton administration — so that Karen can have the maximum impact on America’s 26 million small businesses, which create three quarters of net new jobs annually.”

So what experience will Wells bring to the table?   Equipped with an MBA from Harvard University, Wells has 25 years experience as a principal in the private equity and venture capital industry and has taken a leadership role in the growth of more than 20 companies in the consumer products, food, distribution, textile and industrial component sectors according to the press statement released by President Elect Obama.  A resident of Maine, she chairs the Governors Council on Competitiveness and the Economy.

Mills appointment was praised by Massachusetts Senator John  Kerry, Chairman of the Senate Committee on Small Business and Entrepreneurship.

“The President-elect’s selection to lead the SBA demonstrates his commitment to bring Washington in touch with the real needs of Main Street.  Karen has been a champion of small business,” said Kerry in a press statement.

U.S. Treasury Announces Initiative to Increase Small Business and Consumer Lending

By Hopeton Hay

The U.S. Department of Treasury and the Federal Reserve announced a

Treasury Secretary Henry Paulson

new initiative to increase the availability of funds for small business and consumer loans, the Term Asset Securities Loan Facility (TALF). TALF will help market participants meet the credit needs of households and small businesses by supporting the issuance of asset-backed securities collateralized by student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration.

Under the TALF, the Federal Reserve Bank of New York will lend up to $200 billion on a nonrecourse basis to investors who purchase these asset-backed securities. The U.S. Treasury Department will provide $20 billion of credit protection to the Federal Reserve for the TALF. As a result lenders will find it easier to sell the loans they make and use the proceeds of those sales to make new loans. Recently the market for asset-backed securities had ground to a halt due to credit market stresses said U.S. Treasury Secretary Henry Paulson.

“By providing liquidity to issuers of consumer asset backed paper, the Federal Reserve facility will enable a broad range of institutions to step up their lending, enabling borrowers to have access to lower cost consumer finance and small business loans,” said Paulson.

The announcement to include small business lending in the latest initiaitive to unclog the credit markets comes on the heels of a letter sent on November 20 by U.S. Senators John Kerry, Olympia Snowe, and Charles Schumer to Paulson urging him to use a portion of the Treasury Departments rescue package to purchase SBA guaranteed loans. Sen. Kerry is Chairman of the Senate Committe on Small Business and Entrepreneurship and Sen. Snowe is a ranking member of the committee while Sen. Schumer is a senior member of the Senate Commitee on Banking.

SBA Acting Administrator Sandy Baruah applauded the new initiative as a major breakthrough in efforts breathe life into the market for small business loans.

“We expect these efforts to help free up the capital both brokers and investors need to purchase new SBA loans,” Baruah said.

SBA Makes Changes to Jumpstart Small Business Loans

By Hopeton Hay

The U.S. Small Business Administration (SBA) announced two changes to its loan guaranty program this month to stimulate small business lending.

The first change will allow banks to use an alternate base interest rate, the London Interbank Offered Rate (LIBOR), to calculate the interest rate it charges customers.  LIBOR typically is the cost of funds for banks.

SBA rules previously required banks to limit the interest rate they charged customers based on the prime interest rate. However, the decline in the historic spread between LIBOR and the prime interest rate had severely squeezed the profitability of SBA guaranteed loans.

Sandy Baruah

“This change will help more small businesses obtain capital to grow their businesses and create new jobs,” said Sandy Baruah, Acting Adminstrator of the SBA. “By allowing both rates, SBA is making its programs more flexible, increasing opportunities to access capital and giving both lending partners and small business customers more options to meet their needs.”

The second change allows a new structure for assembling SBA loans into pools for sale in the secondary market. During normal economic times, small lenders sell their SBA loans to the secondary market freeing up capital for more loans. The financial turmoil, however, has drastically reduced the market for SBA loan pools. The SBA expects the enhanced flexibility in loan pool structures to positively affect profitability and liquidity in the secondary market for SBA guaranteed loans, especially with the current market conditions.

Eric Zarnikow

“The SBA moved quickly on these changes after consulting with small businesses, lending partners and other government agencies,” said Eric R. Zarnikow, SBA’s Associate Administrator for the Office of Capital Access. “We’re confident these solutions will help free up capital so lenders can continue to make SBA-backed loans.”