Critical SBA Stimulus Funding Lapses

Dec 2, 2009

While small-business owners are struggling to survive in the worst economic downturn in decades, a key loan program hangs in the balance due to Congress’ failure to act. NSBA is calling upon Congress to extend critical funding provisions passed under the American Recovery and Reinvestment Act (ARRA) that reduced the upfront borrower fees for SBA’s 7(a) and 504 lending programs and increased SBA’s 7(a) loan guarantee to 90 percent.

Unfortunately, the $375 million appropriated—a drop in the bucket considering the $787 billion set-aside for stimulus funds in ARRA—for these temporary measures has been exhausted and Congress has not yet appropriated additional funding for their continuation, despite SBA Administrator Karen Mills’ support for such action. This has forced the SBA to reestablish its pre-stimulus upfront borrower fees and revert back to its traditional guarantee levels. The SBA also has created a queue for optimistic small-business owners who prefer to hope and wait for Congress to appropriate the funding necessary to re-enact the reduced fees and increased guarantee.

“This is unacceptable,” stated NSBA President and CEO Todd McCracken. “Given the ongoing credit gap small businesses are facing, it is unconscionable that Congress would allow this crucial program to suffer in such a way.”

The increased loan guarantee has made the 7(a) program more attractive to lenders and the reduced fees made the loans more affordable for both aspiring and surviving entrepreneurs. According to the SBA, its average weekly dollar volume is more than 60 percent higher than it was in the weeks before the stimulus bill was enacted. The SBA also reports that its average number of loans approved per week has increased by more than 50 percent and that the $1.9 billion in loans it approved in September was its highest single-month total since August 2007.

It is highly likely that without an extension of the reduced fees and increased guarantee provisions, many lenders will curtail their small-business lending and many would-be borrowers will be forced to seek alternative sources of capital with lower upfront costs—even if, in the long run, those funds are more volatile and expensive.

Historically, small businesses have been the catalyst that brings the U.S. out of a recession, through the creation of millions of new, small firms and new jobs. The longer Congress waits to address small-business owners’ need for capital, the longer and more painful any economic recovery for the U.S. will be.

Please take a few moments now to write to your members of Congress and urge them to extend this critical funding.

© 2007 National Small Business Association