Financing

A New Report Card on the SBA's Loan-Guarantee Programs


A New Report Card on the SBA's Loan-Guarantee Programs

Photograph by Andrew Olney

The Small Business Administration guaranteed $29.6 billion in loans through its two biggest lending programs in the year ended September 2013, the agency said this week. That includes $11.7 billion for the SBA’s 504 program, which is used to finance real estate and other major assets, and $17.9 billion for its 7(a) program, which guarantees loans for more general purposes, such as working capital.

Here are three takeaways from the end-of-fiscal-year report:

• SBA loan volumes were lower in 2013 than in the previous two fiscal years, when guarantees topped $30 billion. Still, the last three years are the highest on record for SBA lending. Boosting SBA lending was a priority for Karen Mills, who headed the agency before leaving for a post at Harvard University in August. In 2009, Mills’s first year in charge of the SBA, the agency backed $17.8 billion in 504 and 7(a) loans. Even if lending was down a bit this year, the numbers are still significantly higher than before Mills took the reins of the agency.

• The SBA attributed the decrease in guaranteed loans to the expiration of a program allowing business owners to use the 504 program to refinance more expensive loans. That program was especially important to “businesses that survived the recession without laying people off but by taking on short-term debt,” says Beth Solomon, chief executive officer of the National Association of Development Companies, a trade group for 504 lenders. A Senate bill extending the program, which was originally created as part of the Small Business Jobs Act of 2010, has bipartisan support, says Solomon.

• While 504 lending decreased to $11.7 billion from $15 billion in fiscal year 2012, 7(a) lending increased, says Tony Wilkinson, CEO of the National Association of Government Guaranteed Lenders, whose members make 7(a) loans. Wilkinson likes to say that together, the 7(a) and 504 programs account for as much as 70 percent of long-term small business lending in the U.S.

Here’s his back-of-the-envelope math: There’s about $600 billion (PDF) in outstanding small business loans, defined as loans for $1 million or less, says Wilkinson, and only a quarter of those loans have terms longer than three years. That makes roughly $150 billion in small business loans with maturities of more than three years, and there’s about $110 billion in outstanding SBA loans, Wilkinson says.

Clark is a reporter for Bloomberg Businessweek covering small business and entrepreneurship.

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