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SBA Approves New Lending Rules
By Bizbox
The Small Business Administration has approved two changes to the way in which so-called 7(a) loans, which form its main loan program, are administered, reports Sharon McLoone of BizBox sister site Washingtonpost.com.
The changes should in theory make it easier for banks to offer the loans, which are designed for small business and which the SBA partially backs. The changes were championed by Democratic Sens. John Kerry (Mass.) and Chuck Schumer (N.Y.)--the former the chair of the Senate Small Business & Entrepreneurship Committee, the latter an extremely powerful legislator who has advocated direct lending to small businesses. McLoone reports that Sen. Olympia Snowe (R-Me.), the ranking member of the committee, also praised the changes.
A bit of background: 7(a) loans are falling, even plummeting (although, interestingly, the average size of a 7(a) loan rose from 2007 to 2008). The SBA has asked banks to go easy on small businesses that took out 7(a) loans before the credit/asset/general financial and economic crisis hit and have seen the value of their collateral collapse, by for example giving them three-month payment deferrals, though some have warned that this could discourage banks from making 7(a) loans in the future.
What are the changes\, exactly?
1. Banks can use rates other than the prime rate to make loans. This includes the LIBOR rate.
2. Banks can bundle loans with differing rates into the same package for sale on the secondary market. This should make such sales, which provide incentive for the banks to make the loan in the first place as well as additional capital with which to make future loans, more palatable.
The changes are better than nothing--although it would be nice to see help for small businesses that isn't also help for big banks (who have been given quite a bit already). You know, such as direct lending, perhaps?
Comments (0)November 13, 2008 2:34 PM
