Small business lending falls sharply

In its first full quarter since the Recovery Act kicked in, the SBA still backed 30% fewer small business loans than it did a year ago.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Emily Maltby, CNNMoney.com staff writer

Photos
SOS: Send loans now
With bank lending to small businesses nearly frozen, these 8 entrepreneurs are among the thousands fighting for the credit lines and loans they need to keep their companies alive.
chart_sba_loans.gif

NEW YORK (CNNMoney.com) -- Despite emergency stimulus measures, small business lending continues to fall. In the just-ended quarter, the Small Business Administration's flagship program backed 30% fewer loans than it did a year ago, and 55% fewer loans than it did in 2007, before the recession set in.

The numbers bear out the grim reports from business owners who say that credit is dangerously scarce for small firms. The SBA's 7(a) program approved 11,580 loans in the quarter ended June 30, valued at $2.5 billion. That's down from 16,490 loans, worth $3.4 billion, in the same quarter last year.

For the full year to date, the situation is even darker. In the first nine months of its 2009 fiscal year, the SBA has approved roughly half as many loans as it did last year.

With sales slow, many business owners are looking for financing to help them weather the recession, but banks have clamped down on making the risky loans. Additional incentives from the SBA, authorized as part of February's Recovery Act, have helped spur some increased lending but haven't sparked a complete rebound.

Still, SBA officials point to post-stimulus lending trends as a sign that the situation is at least better than it would have otherwise been. Comparing the months before and after the February 17 stimulus signing, the SBA reports a 24% jump in the number of 7(a) loans it has backed.

"They are having an effect," SBA spokesman Mike Stamler said of the SBA's new incentives. On March 16, the agency implemented provisions authorized in (and retroactive to the signing of) February's stimulus bill. The agency has suspended the fees it traditionally charges for its loan guarantees, and has increased the percentage of each loan it will back to up to 90%. If the small business defaults, the government pays the bank back for the guaranteed portion of the loan.

More than 400 lenders that hadn't made a 7(a) loan since at least September have returned to SBA lending since the Recovery Act passed, Stamler said. Last week, the SBA hit a psychological milestone. For the first time since August, it approved more than 1,000 7(a) loans in one week.

One promising sign for borrowers seeking loans: Industry observers say they're seeing more activity on the secondary market. Banks that make SBA-backed loans often resell bundles of those loans to other investors. That market all but froze last fall, cutting many banks off from the capital they needed to keep lending. But in recent months, secondary-market sales have picked up.

"In addition to help from higher guarantees and fee reductions, the price being paid for SBA loans in the secondary market is increasing and helping fuel increased SBA loan volume at many community banks," said Paul G. Merski, chief economist for the Independent Community Bankers of America. "Some of our community bank members are making more SBA loans this year than last."

Temecula Valley Bancorp (TMCV) in California, which was a top-10 SBA lender last year, dropped out of the SBA program in January because of the poor secondary market conditions. SBA division head Stephanie Bitters said Temecula has noticed the improvement in the market and said her bank hopes to participate again later this year. To top of page

To write a note to the editor about this article, click here.




QMy dream is to launch my own business someday. Now that it's time to choose a major, I'm debating if I should major in entrepreneurial studies or major in engineering to acquire a set of skills first. Is majoring in entrepreneurship a good choice? More
Get Answer
- Spate, Orange, Calif.

Sponsors
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.