Small business financing still available with SBA and banks

Despite the challenging economic climate, small businesses can still obtain credit through banks that partner with the U.S. Small Business Administration (SBA), which guarantees business loans. Recognizing that small businesses remain the most fertile source of both business growth and employment, the recently signed American Recovery and Reinvestment Act actually increases the availability of SBA financing. This represents one of the first and most directly beneficial effects of the act, and a bright ray of hope in an otherwise often gloomy business finance landscape. To understand the significance of the SBA financing aspects of the act, it's important to recognize a key negative factor that has contributed to the overall credit squeeze: the collapse of the secondary market for asset-backed securities, prompted by the decrease in the value of securities based on subprime mortgages. The secondary market had previously allowed banks to sell their SBA loans to investors, raising funds for those banks to make future loans to businesses and consumers. The overall tightening of credit markets has temporarily threatened the availability of SBA financing as the secondary market for securitized SBA loans has slowed considerably. (It has rebounded recently, but the speed and extent of its recovery remains unclear.) When banks are unable to sell their loans on the secondary market, they have to hold them on their books. As a result, some banks have become unable to make SBA loans. In fact, some banks are no longer taking new applications for SBA loans at all. Naturally, this has diminished access to SBA loans, one of the most desirable, dependable and affordable forms of financing for small businesses. Fortunately, the new American Recovery and Reinvestment Act brings good news for small business financing through SBA programs. The act provides $730 million to the SBA and changes its lending and investment programs, all initiatives that will help unfreeze credit for small businesses. The funding includes: * $375 million in the temporary elimination of some loan fees, making loans more affordable. * $255 million for a new loan program to help small businesses meet existing debt payments, providing liquidity to borrowers, known as America's Recovery Capital Stabilization Loans (ARC). * $30 million to expand the SBA's Microloan program, which will help finance up to $50 million in new lending and $24 million in technical grants assistance to microlenders. * $70 million for improvements to SBA operations, including technology systems for more efficient lending and oversight processes, expanding the SBA's Surety Bond Guarantee program (from $2 million to $5 million and in limited circumstances to 10 million) and increasing staff to handle new programs. In addition, the act also: * Allows the SBA to increase its loan guarantees to 90% on some loans from current levels (75% on loans greater than $150,000 and 85% on loans less than $150,000) * Allows the SBA to use its 504 Certified Development Program to refinance existing loans for fixed assets. * Establishes secondary market liquidity for section 7(a) loans, SBA's largest guarantee program, as well as a secondary market for "first lien" 504 loans, which support small business capital-asset and real-property investments. The government's focus of the secondary markets is intended to stimulate activity in secondary markets. These changes in SBA lending through the American Recovery and Reinvestment Act are certainly welcome and timely. But it's also important to recognize that many banks were making SBA loans even before these improvements were made. Banks that are staffed by business-lending professionals who understand SBA lending, know their customers and recognize opportunities to deliver the benefits of SBA lending to customers are ideally positioned to lend through SBA programs even under present, distressed economic conditions. One positive lesson in this recession is that the healthiest banks are well capitalized, with high credit standards, solid underwriting and detailed knowledge of the markets they serve. For example, KeyBank, as a whole, which has no exposure to subprime mortgage loans and which has continued to make sound credit decisions, actually increased its loans to businesses in January 2009 over the previous January. Even during the well-publicized credit tightening that justifiably worries so many business people, KeyBank actually increased its SBA Express lending (a part of the SBA 7A program—see accompanying sidebar) by 11% from January 2008 to January 2009. Financing remains available for businesses that can demonstrate the ability to support themselves during currently challenging economic conditions. Banks cannot be faulted for reluctance to lend to failing companies. Most banks understandably prefer to lend to full-relationship clients these days, working with businesses whose operations they know thoroughly. The advantages of SBA lending, a good idea in any business climate, have only intensified during this recession, with SBA-savvy banks ideally positioned to deliver. Patrick Mucci is a vice president at KeyBank, Albany, N.Y.