SBA Loans Fall in June
Number of SBA 7(a) Loans Fall by 49% Nationwide
Small Business Stimulus Package Not Yet Renewed by Congress
In June, the number of business loans guaranteed by the Small Business Administration in its 7(a) loan program fell by 49% dropping to 2,758 loans from the 5,388 loans in May. Many bankers attribute the decline due to the failure of Congress to extend the stimulus package which increased SBA’s guaranty to 90 percent from 75 percent.
The Recovery Act passed in February 2009, led to a dramatic increase in the volume of SBA 7(a) loans – going from about $830M to $1.9B per month. Because the stimulus has not been renewed and the guarantee is back at 75 percent, the banks have greater risk in the loan in the event of a default. Given the condition of the banks existing loan portfolios, many lenders are not willing to accept the greater risk.
Many banks sell the guaranteed portion of the SBA Loans, to buyers who pay the banks premiums which are immediately booked as income. These premiums can be as much as 10% of the guaranteed portion of the loan. Thus, the reduced guarantee also reduces the lender’s premium income.
The greater risk and reduced income leads lenders to reject significantly more applications. This has caused SBA loan volume to plummet to less than $700M in June Nationwide.
