Small Business Administration or SBA is an essential financing source for US entrepreneurs. Both long-term and short-term loans can be attained with SBAâ€™s approval by existing or new small businesses that have potential but fail to get a loan approval on sensible terms from usual lending channels.
However, it is important to note that no direct loans are made available by SBA. It actually provides guarantees for loans that you avail from lending institutions that partner with SBA that includes various community banks.
It is necessary that the applicant should first satisfy all the requirements of the lender and then seek SBAâ€™s guarantee. One other alternative is that the borrower may be seen as pre-qualified, depending on their character, experience, reliability or credit details. This kind of pre-qualification is applicable only for loans up to $250,000.
Latest amendments in SBA Loans
There are an array of loans that are approved by SBA, like loan for business purchases, for assisting businesses that are affected by certain economic conditions, like defense cuts and others. A few loans are also extended for export businesses, those dealing in international trade and also to businesses that are affected by any kind of environmental concerns.
Obama recently announced a package that allows for an increased guarantee on some SBA loans along with reduced lending fee on small-business loans. A higher amount borrowed is being guaranteed and the fee is eliminated on the famous 7a loans and CDC/504 loans.
Another benefit for small business would be TARP or Troubled Asset Relief Program that has been implemented as a way to bail away banks. Mike Stamler, SBA Spokesperson suggests that this would help lenders to get rid of old loans from their books and create the new ones. After all, credit markets slowdown has made selling loans difficult for banks and move to another borrower.
If we analyze the lending to small business according to 7a loans approval, you would notice that when economy was doing quite well in 2007, a total of more than 99,600 loans were approved that totaled to about $14.3 billion. These numbers dropped to $12.67 billion for 69,434 loans. Until now in 2009, approval of loans is already down by 50 percent of what were approved in 2008 until this time. Over 15,400 loans gave been approved as yet that totals to $3.2 billion.
Though Government guarantees these loans but these have not been of much help to the borrowing of small businesses. As a result, Government has now decided to increase the 7a loan portion guarantee from 75-85 percent to 90 percent, though the upper limit remains the same at $1.5 million for these loans. So, if the lender has not considered any loan before, he can do so now, said Stamler.
These steps are taken by the Government in recognition of the fact that companies require additional help in these tough times. But this doesnâ€™t mean that any poorly run business that is about to collapse can seek loan approval through SBA. It is mandatory for businesses to show that they have the capability to pay back the loan.