NEW YORK (CNNMoney.com) -- One stimulus program designed to get loans flowing again to the nation's small businesses worked very well, as in $5 billion well.
Lending to small businesses via two popular U.S. Small Business Administration programs rose nearly 30% in fiscal 2010, to $22 billion. The $5 billion increase translated to almost 7,000 government-backed small business loans.
As a result, "tens of thousands of small businesses have been able to get the capital they needed to not just survive the recession, but to grow and create much-needed jobs in communities all across the country," said SBA Administrator Karen Mills in a statement.
A stimulus provision passed under the Recovery Act of 2009 and later extended in the Small Business Jobs Act, which passed just a couple of weeks ago, sparked the increase in lending, Mills said.
The credit crunch hit small business harder than it did larger corporations: Fearful banks started hoarding cash during the recession, and Main Street loans were considered especially risky.
The stimulus program's "loan sweeteners" increase the guarantee on the SBA's flagship 7(a) loans to 90% from 75%. That makes banks feel more secure about making these loans: They know that if a borrower defaults, the government will reimburse them up to 90% of the amount of the loan. The SBA doesn't lend directly to small businesses; it backs loans made by banks.
The program makes loans more attractive to borrowers as well: A provision waives the fees they normally pay to get either 7(a) or 504 loans, which help small businesses buy real estate, equipment or other fixed assets.
The increased guarantee and fee reductions are nearly unanimously popular: Indeed, funding for the loan sweeteners have run out and been extended four times in fiscal year 2010, which ended in September.
Each time loan sweetener funds ran out, lending plunged, according to the SBA. Still, small businesses that hoped to get a loan with sweetened conditions got into a digital line, which the SBA dubbed the Recovery Queue. When the sweetener funds were refreshed, lending surged almost immediately.
The Small Business Jobs Act, which President Obama recently inked into law, extends the loan sweeteners through the end of 2010. In the first week after the Act was signed, the SBA approved 1,939 loans for $970 million, clearing the Recovery Queue.
The SBA was able to immediately "begin getting capital in the hands of the more than 1,900 small business owners who had been waiting, some for most of the summer," Mills said.
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