SBA Loans Up? SBA Loans Down? Can You Still Get a Business Loan?

As we suspected, the economic slowdown has hit the Small Business Administration. I've heard both sides:

• I read an SBA press release announcing that the SBA has approved more than $1 billion in loans to homeowners, renters and businesses in nine states which were hit by disaster in 2008.
  
• And the SBA says that it is working with the Treasury and the Federal Reserve on a program called TALF to "help restore the flow of buying activity in the disrupted secondary market for SBA-backed loans and generate the liquidity lenders need to step up lending to small businesses." (from SBA news release)

But on the other hand, it appears that the number of loans overall has been severely capped, according to an article in the Wall Street Journal. Many small business owners won't get the loans they need to fund startup or expansion because of stringent caps on loans. The SBA is capping the number of loans they will guarantee to lenders, which in turn means the lenders are more relucant to loan without the SBA guarantees.

The WSJ article reported that "the credit crunch has triggered an obscure congressional cap on some loans in the SBA's flagship lending program, sharply reducing the number of those loans." The "flagship" loans mentioned in the article is the 7(a) loan program, which have been the most widely used loan guarantees for several years. Women and minorities have been particularly affected by the loan caps, as the pilot Community Express loan program caps have been lowered. The SBA says that since this is a Pilot program, it must monitor and limit the number of loans approved under this program. The agency also wants to expand the number of lenders for the program, so it is allowing new lenders to participate but limiting the number of loans for each lender. This might account for the perception that the total number of loans is being reduced. The "10 loans per month" limit can be superseded by banks.

I was particularly interested in the statement in the WSJ article that loan applicants are now being required to submit a business plan. I thought all lenders required business plans.

If you are seeking a business loan, the basics still hold true:

• Prepare a comprehensive business plan that answers all the questions a potential lender might ask.
  
• Get your personal finances in order, and bring reports to show your lender
  
• Be prepared to answer questions about your ability to provide collateral or a co-signer.

The better prepared you are, the better your chances of getting a loan at reasonable rates.