In February, the Small Business Administration, the government agency charged with supporting the nation’s entrepreneurs and small business owners, submitted its budget request along with the proposed budget laid out by the Obama Administration. In it, the SBA asked for more money but pledged to cut back on loans to small businesses. This has entrepreneurs and some members of Congress asking why.
The agency asked Congress for more than $1 billion in 2013, a 20% increase from their 2012 levels but they also want the authority to back $3 billion less in small business loans. This seems to indicate that the SBA wants to do less with more money but is that true?
THE SBA doesn’t loan money to small businesses. Instead, they partner with banks to lend money in the form of 7(a) loans and other products. The SBA guarantees a portion of each of these loans making the bank more comfortable lending since they would only be exposed to a portion of the loan should the borrower default.
But the 7(a) program will drop from $17.5 billion to $16 billion and the SBA’s real estate focused 504 loan program will drop from $6 billion to $7.5 billion. According to the SBA, some of the loans that were made in the past are now costing the agency money. Some of the extra operating funds will be used to shore up the balance sheet mitigating the effects of these loans.
Next, because government stimulus legislation that provided additional operating revenue for the SBA has dried up, the agency now has to operate at pre stimulus levels, making the operating costs of the agency higher than in the past few years.
Finally, when the SBA was given Congressional approval to back $17.5 billion in 7(a) loans and $7.5 billion in 504 loans in 2011, it was given $2 billion less than what it needed to support these loans leaving the extra expenses to be absorbed in later years. While it would appear that the SBA is trying to reduce its loans while asking for more money, in reality, some of the extra money is being used for past expenses.
The SBA loans money through banks in many communities around the nation. Nearly all small business owners have access to a bank that is backed by the SBA. If you need capital, go the Small Business Administration’s website and read about their loan products and how to apply.