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SBA Loans Fell Massively (But Not Shockingly)
By Bizbox
Well this should surprise exactly no one. The number of loans backed by the Small Business Administration dropped a whopping 30% in fiscal year 2008 from FY 2007, and the value of all such loans dropped a sobering 13%. (The numbers come from the SBA; h/t Inc.com.) The decline is of course in large part attributable to the general credit crisis; and the fact that 2007's numbers were record highs likely didn't help. But just because the credit situation deteriorated doesn't mean that small businesses' credit needs slackened, or that the government's obligations to look out for them were dissolved.
You may have noticed the interesting dynamic at work: though both the number of loans and the value of all loans decined, they did so at dramatically different rates. Total loans dropped from 100,000 to 70,000, a pretty steep decline; the difference between the value of FY 2007 loans, $20.6 billion, to FY 2008 loans, $17.96 billion, is quite significant but also much more modest. In other words: the average loan in FY 2008 was larger than the average loan in FY 2007. The SBA is trying to pick businesses where its loans will have the best effect for everyone, and then increasing the amount. Should this strategy sound familiar, it's because we reported earlier today that it's exactly the strategy being pursued by angel investors, who have loaned more money to fewer places as a way to try to cope with the scarcity of credit and the contracting economy.
In a statement, Acting SBA Administrator Sandy Baruah blamed the "perfect storm" of the credit crunch. Blameless, in his reckoning, are those segments of the executive branch with actual teeth as well as Congress for not compelling the bank-recipients of the newly materialized $700 billion in government capital from increasing their SBA loans. The SBA, to its credit (no pun intended), has asked the banks at least to cut recipients of 7(a) loans some slack. Unfortunately--and through no real fault of its own--the SBA lacks the authority to do anything in the way of compelling such action.
Of course, given the not-unreasonable fear that asking the banks to allow 7(a) borrowers extensive leniency could in the long run choke the flow of 7(a) loans, it might make sense for the government just to step in directly (perhaps via the SBA). Sen. Chuck Schumer (D-N.Y.) has suggested "tens of billions" in direct lending to small businesses as a part of the larger bailout effort. At the least, it could tell the banks to lend some of this capital out to small businesses instead of telling them to hoard it in order to acquire small banks.
For, as always, the fact remains: small businesses need credit. If the SBA, whose prime function is precisely backing so-called 7(a) and 504 small business loans, can't loan these companies money, well then, Congress: what are you going to do about this? Come January, we'll be taking notes.
Comments (0)October 31, 2008 12:15 PM
