Small Business Loans: Any Good News From Congress?

Banks loaning to small businesses. Now that is an intriguing thought. Finding one in this troubled economy is a cross between wish fulfillment and downright desperation. But I would like to throw a little good news your way for a change. On April 19th Congress made it even easier and cheaper to secure that needed capital for your small business working capital or expansion needs. Yes, those of little faith, I am talking about our very own the U.S. Congress.

First, the dry facts about this loan program and then how it may affect us small business owners. SBA loans are not made by the Federal government. Instead, private lenders are licensed with the SBA and provide the actual funds. The reason banks are interested is the SBA guarantee issued for each loan. If you do not make your payments and there is a loss, the bank will be reimbursed. The idea is to give them more incentive to make the loans in the first place.

But who pays to reimburse for those bank losses? Traditionally, each borrower withheld a guarantee fee on closing to Washington DC to be used as a war chest. But that was somewhat expensive and so in February of 2009 with the Stimulus Act – American Reinvestment and Recovery Act, we as taxpayers began subsidizing those borrower default losses and no more fees were charged. In turn, this requires Congress to allocate money for the program. So far, they have renewed this subsidy approximately five times, renewing it each time. The current subsidy of 80 million now lasts through the end of May, 2010. It also continues in effect a 90% guarantee on those losses.

So far so good. The effect is there are banks out there right now who are interested in lending under a micro program called SBA Community Express. This gives unsecured small business loans between $5,000 and $25,000 with very little paperwork, answers typically in 3-5 days, interest rates presently at 7.75%, only $60 per month per $5,000 borrowed, funding in two weeks, and monies wired directly to your business account. There are still SBA licensed lenders participating in this program.

It could not come at a better time. While small businesses are hanging on tightly with both hands, they could use some relief in the form of competitively priced SBA loans. At a minimum, they will be available through the end of May. For the 28 million small businesses in the U.S., it is a well deserved shot in the arm.