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SBA’s Efforts to Induce Lenders to Make Smaller Loans

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April 19, 2013

By Bob Coleman
Editor, Coleman Report

RestaurantimageNew York Time Small Business Journalist Robb Mandelbaum has written an excellent recap of agency’s push to help lenders’ make loans less than $150,000.

The percentage of SBA 7(a) loans less than $150,000 has dipped to 9% of the program, off the 24% peak in 2007.

Robb questions whether elimination of fees and streamlining paperwork requirements will work.

He writes, “The new budget for the S.B.A. would waive the agency’s fees for guaranteeing loans of less than $150,000, and this follows recent efforts to streamline one program to encourage more small loans. But some observers in the S.B.A.-lending industry doubt these moves will be sufficient.

“S.B.A. officials trace the decline in smaller guaranteed loans to the collapse of a loan program known as S.B.A. Express, a 7(a) variant that allows lenders to use personal credit scores rather than business fundamentals as the basis for approving loans. The big banks that participated in S.B.A. Express startedracking up huge losses in the program even before the recession hit, and many gave up on the smaller loans. Then, in 2010, the S.B.A. shuttered a separate loan program, Community Express, that focused on providing small loans to borrowers in struggling communities. A replacement initiative known as Small Loan Advantage has been considered too cumbersome, at least until recently, to win over lenders.”

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