The Small Business Administration will run out of funds this week for two successful lending initiatives, which have reduced fees for borrowers and lenders and raised loan guarantees.
The programs, implemented last year as part of the $700 billion stimulus law, have already been extended by Congress four times and are expected to receive more funding within the next few weeks. But the fits and starts have frustrated community bankers.
"What baffles me is, with all the money the federal government wastes, why this one program that actually works is held hostage every few months," said Guy Williams, president of the $986 million-asset Gulf Coast Bank and Trust Co. in New Orleans.
The stimulus law provided $375 million for the SBA to reduce or eliminate fees for borrowers on 7(a) loans and for borrowers and lenders on 504 loans. The funds also allowed the agency to raise to 90% the guarantee on 7(a) loans, up from 75% to 85% depending on the size of the loan.
The 7(a) loans provide financing for general business purposes and are delivered by commercial lenders; 504 loans are for fixed assets and delivered by nonprofit economic development groups.
The incentives are twofold: the lower fees entice borrowers, and the higher guarantees cut the risk for bankers. "It's very risky to do small-business lending in the current economic environment, so having that SBA guarantee extended for this loan program has been wildly successful," said Paul Merski, the senior vice president and chief economist for the Independent Community Bankers of America.
SBA Administrator Karen Mills, speaking to lenders and small-business owners in Washington Monday, said the agency has turned the $680 million received so far under the programs into $27 billion in lending, or about 63,000 loans. "That's nearly double our weekly loan volume compared to the weeks before [the stimulus] passed," Mills said. "And here's the headline: Our borrowers report that they've been able to save and create hundreds of thousands of jobs as a result."
The incentives have attracted 1,300 lenders to the program who hadn't made an SBA loan since 2007, according to the agency.
Funding initially ran out in November, and Congress extended the programs until the end of February. Funding was further extended until the end of March, and then the end of April, and yet again, to May 31.
The House is set to vote this week on a provision — included in legislation extending various tax breaks — that would authorize another $505 million to extend the lower lending fees and higher guarantee through 2010. Lenders say that, while they welcome a long extension, another interruption in funds is vexing.
"It creates a lot of anxiety for the customer because it takes weeks sometimes to get their application together, or to get their project to the point where we can submit it," said Mary Merriman, the senior vice president of commercial banking at the $124 million-asset Summit Bank in Eugene, Ore.
Gulf Coast's Williams agreed that the delays can have real effects on borrowers. "If you're ready to start a business and suddenly the funding expires, now you're out of luck," he said. "You can't do your deal when you're waiting for the funding to get approved."
Mills has said she hopes the incentives will be extended beyond this year, a move that some bankers said they would support.
"The first priority is to get it extended through the end of the year, and then we'll go from there," Merski said.
