Since the financial crash in September 2008, lending by banks to small businesses has dropped dramatically. It is estimated that there will be 50 percent fewer loans to small businesses during 2009 than in 2007. The American Recovery and Reinvestment Act (ARRA) includes money for the Small Business Administration (SBA) to help small businesses get loans. Here are the main incentives included in this Act:
Increased Loan Guarantees
The SBA has temporarily increased the percentage guarantees on its 7(a) loans up to 90 percent. This means that the bank is guaranteed a 90 percent return on the loan by the SBA in case the borrower defaults. Note that the increased guarantees are temporary, until the end of the calendar year (2009) or until the funding limit on this program is reached, whichever comes first.
Elimination of Fees
Some of the fees on 7(a) loans and 504 loans will be waived. Fees "for 7(a) loans approved by SBA on or after February 17, 2009, the Small Business Act section 7(a)(18)(A) fees (upfront guaranty fees) for all eligible loans, including those made with higher SBA guarantees (up to 90%)." The SBA also states that, "for eligible loans approved through the Agency’s section 504 Development Company Program on or after February 17, 2009, SBA will temporarily eliminate two program fees" through the end of 2009 or until the funds are exhausted.
Unlock Frozen Credit
As part of the Recovery Act, the Treasury Department has announced that it will "commit up to $15 billion to help unlock the frozen credit markets by purchasing small business loan securities currently frozen on the secondary market." This measure is intended to free up more credit so banks are more willing to loan to small businesses.
Increases in Surety Bonds for Small Contractors
The SBA has also announced that small contractors can qualify for higher amounts of surety bonds, up to $5 million, to help them obtain contracts. Previously the maximum surety bond amount was $2 million.
New Loan Program
The Recovery Act legislation also has earmarked $255 million for a new loan program to help small businesses pay their debts. Details on this program have not yet been released.
Back to SBA Loan Programs Overview