The U.S. Small Business Administration (SBA) backed about 40,000 7(a) loans during the quarter ending March 31, 2008, which is an 18 percent decrease from the second quarter of last year. 7(a) loans to women, veterans, and rural entrepreneurs particularly are down, having fallen 15 percent, 20 percent, and 27 percent respectively.

Perhaps even more troubling, Express loans are down 30 percent. Contending that this decline is attributable to a considerable drop off by a handful of larger banks, the SBA contends that the dollar volume for Express loans is down only 9 percent.

SBA’s associate administer for capital access, Eric Zarnikow, attributed the decrease in 7(a) loans to “a weaker economy.” He argued that the 7(a) data followed a pattern similar to the data on commercial loans compiled by the Federal Reserve. He also claimed that small-business demand for loans was down and that banks were seeing fewer credit-worthy borrowers. He further argued that lenders previously had been too lenient with their credit scoring. According to the SBA, 7(a) delinquencies are up to 2.39 percent, an increase of more than 50 percent.

Not everyone agrees with this assessment. The National Association of Government Guaranteed Lenders, a trade association representing banks that participate in the SBA's lending programs, attributed some of the decline to the higher borrower and lender fees the SBA has been charging and the loss of more than 368 banks from the 7(a) program. NSBA also has warned for years that the SBA’s increased fees would drive both borrowers and lenders from the SBA’s lending programs.

Displeased with the declining loan volume, Rep. Nydia Velazquez (D-NY), chairwoman of the U.S House Committee on Small Business Committee said, “It is important to remember the SBA's loan program was created to kick in during tough times. It was designed to provide a counterbalance when private sector lenders have to tighten their standards.”

A new report from the SBA’s Office of Advocacy appears to paint a brighter picture. The report, Small Business and Micro Business Lending in the United States for Data Years 2006-2007, demonstrates an increase between June 2006 and June 2007 of approximately 15 percent in the number of small-business loans outstanding under $1 million. The report also found that the total dollar volume for these loans increased by about 8 percent, during the same period. Loans between $100,000 and $1 million increased by almost 32 percent; and loans under $100,000—including many business credit-card loans—increased in total dollar value by 9.4 percent. The report was complied using both Consolidated Reports of Condition and Income from June 2007 and Community Reinvestment Act reports for 2006.

For more information or to view a complete copy of the report, please see: www.sba.gov/advo.