From the Washington Business Journal./  Read it all here.

If you want a Small Business Administration loan, you better act fast — in a couple of months, the agency will run out of the $375 million in economic stimulus funds that made the program more attractive to lenders.

The American Recovery and Reinvestment Act enabled the SBA to increase its guarantee on 7(a) business loans to 90 percent, up from its usual 75 percent to 85 percent. The stimulus bill also allowed the SBA to reduce or eliminate fees on 7(a) loans and its 504 loans, which are primarily used for real estate.

These enhancements made SBA loans a better deal for both lenders and borrowers. The SBA’s average weekly loan volume is up by more than 60 percent compared with January and February, before the stimulus bill was passed.

That loan volume is expected to surge even further in coming weeks, because the SBA says it will run out of money to support the lower guarantee and fee reductions by late November or early December.

SBA lending declines
7(a) loans
FY 2007 FY 2008 FY 2009
Number 99,606 69,434 44,221
Dollar value $14.3 billion $12.7 billion $9.3 billion
504 loans
FY 2007 FY 2008 FY 2009
Number 10,669 8,883 6,608
Dollar value $6.3 billion $5.3 billion $3.8 billion
Source: Small Business Administration

Some members of Congress would like to extend these incentives, but they haven’t figured out how to pay for it. They don’t even know exactly how much money they would need — the SBA had not provided the Senate Small Business and Entrepreneurship Committee with cost estimates as of Oct. 6.

The agency is, however, working on how to “wind down” these incentives in an orderly fashion, said Eric Zarnikow, the head of SBA’s Office of Capital Access.

Lenders stressed the need to continue the incentives at an Oct. 1 roundtable held by the Senate committee. So did Michael Heath, who said he would not have been able to afford a 7(a) loan to buy Ramunto’s Brick Oven Pizza in St. Johnsbury, Vt., if it hadn’t been for the fee reductions.

Thanks to these incentives, the SBA approved $1.9 billion in loans in September — its highest monthly loan volume in more than two years.

“To get there, it took a lot of stimulus,” said Tony Wilkinson, president and CEO of the National Association of Government Guaranteed Lenders.

If that stimulus goes away — which looks likely — lenders fear that SBA lending will decline dramatically.

Down year despite stimulus

Despite the boost provided by the economic stimulus bill, SBA lending in fiscal 2009, which ended Sept. 30, was down dramatically compared with the previous year. The amount of money loaned to small businesses through the 7(a) program dropped by 27 percent to $9.3 billion. Only 44,221 businesses received these loans, down 36 percent from 2008. Lending through the 504 program was down by about 28 percent.

The decline in SBA lending occurred “just when traditional lenders started turning small businesses away and these businesses needed the SBA and its programs more than ever,” said Sen. Mary Landrieu, D-La., who chairs the Senate Small Business and Entrepreneurship Committee.

While the stimulus provisions helped SBA lending rebound, “we’re still not back up to the levels we’d like to see,” Landrieu said.

“We continue to hear that small businesses can’t get credit, and I think we need to go a step further to continue the momentum we’ve seen so far,” she said.

Greg Clarkson, SBA division manager for BBVA Compass in Dallas, agrees.

“Borrowers’ needs are greater at a time when banks are constricting their lending standards,” he said.

Larger loans needed

Increasing the size limits on SBA loans is one way Congress could help more small businesses, Clarkson said. The current $2 million limit on 7(a) loans is too low, he said, particularly now, when many small businesses need loans not just for expansion, but also for working capital.

SBA lenders want Congress to increase the loan limit to $5 million. Nine business organizations, including the U.S. Chamber of Commerce and the National Small Business Association, have endorsed this increase.

“Jobs resulting from the investments in these small businesses will be instrumental in providing the foundation for economic stability, both locally and nationally,” the business groups wrote Congress.

Larger 7(a) loans have performed better than smaller loans in the past, so increasing the loan limit should not result in more losses for the program, lenders said.

The community development corporations that make 504 loans also want Congress to increase the size limits on their loans, which typically are paired with loans made by private-sector lenders. The current limit on government-guaranteed 504 loans is $1.5 million, or $2 million if a project meets certain public policy goals. The National Association of Development Companies would like Congress to increase the 504 loan limit to $5 million, and higher for public policy loans.

“In today’s world, our loan size is too small,” said Andre Fruge, president and CEO of Louisiana Capital CDC Inc. in Lafayette, La.

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