Boosting Small Business Lending

By Marc Tracy

"Anonymous Banker," who appears periodically on New York Times columnist Joe Nocera's blog, will always be our favorite expert on Small Business Administration-backed loans. But we also very much enjoyed this interview that Inc.com did with Christopher Hurn, the CEO of Orlando-based SBA lender Mercantile Commercial Capital.

Hurn was optimistic that the current trend of massively slowed SBA loans will be halted by government actions: not the SBA's, which we detailed here, but the New York Federal Reserve's agreement to buy up securities backed by struggling SBA loans, which we reported on here--in total, $200 billion will go to buying up securities backed by SBA, auto, and a couple of other struggling types of loans.

"It’s great that you can now price the loans off of Libor," Hurn says, referring to one of the SBA's changes. "But this is an issue of access to capital, not an issue of the cost of capital. Right now, rates are at historical lows. But it doesn’t really matter if a business owner can’t get a line of credit in the first place." He adds, "What the Fed and the Treasury have done is actually take some action. They’ve got the facility now where they can start buying these loans, and that’s really what’s going to thaw out the market." Let's hope.

Hurn--who, it should be disclosed, runs a company which is basically in the business of making SBA loans--criticized the big banks along the lines Anonymous Banker (who purportedly is a small business lender at one of them) did: namely, for taking the bailout money and not lending it back out to small businesses. "It would be interesting to see when these large banks decide they want to get back into SBA lending. They will in a year or so, but they’re not there when the small-business community needs them," he says.

As for what the federal government should do now, Hurn suggested addressing what he said was an overlap between the SBA's two big lending programs, the 7(a) one and the 504. He also suggested that the SBA, well, market itself better: not as the desperate lender of last resort but as a great resource that can frequently be used in concert with banks in order to borrow much-needed cash. Finally, echoing Sen. Olympia Snowe (R-Me.) and others, he suggested that President-elect Barack Obama make the Small Business Administrator a Cabinet-level officer, as President Bill Clinton did (and President George W. Bush did not). (We for one would be surprised if so uncontroversial a move didn't happen.)

At one point, Hurn says of the country's biggest banks--the ones who took the heaviest losses and have received the most in taxpayer dollars, and who at the same time are, in almost direct proportion to their sizes, the biggest SBA lenders--"They’re being encouraged to lend, but there’s no gun to their heads saying, ‘Look, you’ve got to put the money back on the street.’"

They're being encouraged. Even assuming that's true--and, according to Joe Nocera, who reported that the Treasury Department wants the big banks to take the government's money and use it to buy up smaller ones, it's not--we're talking about the federal government here, the one entity that is empowered and even expected to do a bit more than encourage. There is no gun to the banks' heads, and while we're not in favor of putting, you know, actual guns there, we are very much for actually requiring a burst in lending, particularly to small businesses. And it is there that we believe the incoming administration should begin.

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December 16, 2008 5:18 PM