Posted: April 16, 2010
For the past 20 years, I have written numerous articles about the U.S. Small Business Administration (SBA) programs available to small business owners. I am enamored with the idea that an entrepreneur could attain his/her goals through the assistance of a fundamentally strong government program. Unfortunately, the federal government has been not very conscious of the needs of the nation's largest economic engine since it continues to only apply band-aid approaches to funding the existing loan opportunities.
For the third time in the past year, the federal government has extended funding to the SBA. In total, $885 million has been allocated to the program in the last 15 months, which has supported $23 billion in loans to small businesses. Now is the time for the government to extend the program with full funding through at least the end of the calendar year.
The SBA-backed loans currently include a 90 percent guarantee by the government. This makes it easier for lending institutions to offer the SBA option, especially since fees associated with administering the loans have been waived.
There is a common thought that SBA loans are only given to businesses that would not otherwise be able to qualify for a conventional loan. However, since the SBA loans are set at a fixed rate, quite the opposite has happened. It is estimated that more than half of the SBA dollars over the past year were processed for companies that would have likely qualified for a regular variable interest rate loan. But the applicants, along with their lender, elected to go with the government-supported option.
I realize that any government program extension generally has a negative impact on the federal deficit. But the SBA program, albeit its quirks and sometimes lengthy paperwork, is an example of goverment doing what is best for the economy. Plus, bankers who are faced with higher credit thresholds are able to assist their customers who need financing now. This is the time of the year when small business owners have completed their tax returns and have a better understanding of their ability to expand and add jobs for the rest of 2010.
Since the federal government is up to its ears with deficits, the least it could do is expand a program that has a track record of providing the necessary capital for equipment and/or building expansion and creating jobs. I am usually not for government involvement when it comes to business, but this program makes too much sense to not allow more small business owners to be eligible to utilize taxpayer dollars that eventually go back into the economy.