Why has there been a decrease in Small Business Loans?

Anyone who has gone through the process of trying to secure a Small Business Loan knows how difficult it can be. Because I am in the business of helping others with the materials needed to apply for a loan, I always find it interesting to hear what the banks are doing to try to help, or for lack of better words, “screw over” small businesses.

I came across an article by author Robb Mandelbaum from the Small Business section of The New York Times called “The S.B.A Wants to Encourage More Small Loans” READ ORIGINAL ARTICLE HERE and it immediately caught my attention. Here is a list of things I found noteworthy.

• The White House sent a budget to Congress for 2014 that attempts to push banks to make smaller loans to small businesses

• The S.B.A. – guaranteed “general business or 7(a) loan” for $150K or less has decreased $3.5 billion since 2007.  

• The recession that hit in 2009 is still partially to blame for loan uncertainty today.

• S.B.A reported that the decline in smaller guaranteed loans went up in flames because the loan approval was based on personal credit scores rather than business fundamentals. The banks that participated in this “S.B.A. Express Loan” experienced huge losses.
• Another loan program called “Community Express” introduced in 2010 has not been successful.

• Borrowers have been forced  to use the traditional 7(a) program which is costly and time intensive for the banks; since it cost the same and takes the same amount of time for any loan amount, banks are finding bigger loans more profitable and worth the work. 

• Because banks are heavy lending to larger businesses with larger loan requests, the S.B.A. needed to come up with a plan for small businesses/smaller loans. 
• The S.B.A.’s solution is to waive the fees for banks to guarantee small loans (this includes the one time and annual fees). It is still unclear if this fee waive will spark new lending. 
• The S.B.A. has also rolled out a new program called “Small Loan Advantage.”  
  

It is too soon to tell if the new S.B.A. programs will be beneficial for small businesses or just add fuel to the fire. My advice, DON’T GIVE UP! The economic health of our country is turning around, and this article proves the S.B.A. acknowledges the problems and is putting programs in place to fix it.

Keep visiting your trusted lender and keep pushing for small business loans…your hard work will eventually pay off.