Someone asked me recently, “when are the banks going to start lending and what is the SBA doing to get them to lend?” This is a two part question and, as I mentioned in our April newsletter, banks have the cash to lend but have tightened their underwriting standards. But this tightening of underwriting standards should not be misinterpreted – it does not mean there is no appetite to lend. Indeed, one lender I spoke with recently told me that his goals for 2009 include increasing his loan portfolio by 9%. This strikes me as an impressive goal, particularly in today’s economy when so many businesses are in the doldrums and have been weakened. To put this in perspective, wouldn’t you be happy to increase your sales 9% this year? And what is the SBA doing to encourage lending? As previously reported, the SBA has temporarily increased the amount of their loan guarantees and waived their guaranty fees. Now the real question is “are these measures working? Is the credit pipeline beginning to thaw”? On May 5th, The Wall Street Journal reported that the volume of new SBA-backed loans has risen more than 20% since mid-March with the weekly average number of 7(a) working capital loans approved having risen 28% from January to mid-March; the 504 loan program for real estate and other fixed assets has seen its average weekly volume increase by a third in the same period.
Also, effective June 15th, the SBA has a new loan program called ARC loans. These loans are designed for businesses that have been profitable but are now experiencing difficulties due to the economic downturn but which can demonstrate reasonable projections that their distress will reverse as the economy recovers. The ARC program, for loans up to $35,000, is interest free to the borrower, are 100% guaranteed to the lender and can be used for payment of principal and interest on existing bank debt. Repayment begins six months after the last disbursement and can be made over an extended period. Detailed information can be found on the SBA’s website (www.sbs.gov).
So, the answer to that two part question is that the banks have both the cash and desire to lend, albeit with more conservative underwriting standards. The SBA’s current posture is contributing to getting credit flowing to small business again and the numbers coming in indicate that this is working. Now may be the time to review your business to be sure it is focused and on track, brush up your business plan (and seek Score counseling for assistance) and get ready to approach your bank for financing to expand your business in the anticipated recovery.