Loans Provide Economic Stimulus
The government utilized the SBA to help stimulate economic activity in both 2009 and 2010. In 2009, the American Recovery and Reinvestment Act temporarily eliminated loan fees and increased guarantees to 90% while creating or enhancing several types of loans. The Small Business Jobs Act of 2010 extended the 90% guarantees and loan fee waivers, raised maximum loan sizes to $5 million, created a specialized fixed-rate refinance program and expanded the number of businesses eligible for SBA financing.
The stimulus worked. In FY 2011, the SBA’s flagship 7(a) program saw a 48% increase in net lending, from $10.6 billion the year prior to $15.7 billion. Not coincidentally, the U.S. economy experienced modest growth of 4.2% in 2010 and 3.9% in 2011 — not impressive, but a major improvement from the -2.5% figure posted in 2009.
SBA Lending as an Economic Barometer
Absent fee waivers and a widespread 90% guarantee, SBA lending in 2012 seems to reflect the true barometric pressure of the U.S. economy. Ordinarily, and as stated above, SBA lending is counter-cyclical in nature: as the economy declines, SBA lending rises. As such, the relationship tends to be inverted. However, due to the extraordinary length and breadth of this recession and the overt efforts the U.S. is making toward utilizing SBA as a conduit to stimulate growth, the relationship has become directly correlated in nature.
As such, 7(a) loan volume is down 10.2% so far in 2012, above FY 2010 but still below 2011 as well as recent historical figures. Likewise, the U.S. economy saw three straight quarters of improving (if modest) GDP trends, but took a step backwards and grew a scant 1.9% in the first quarter of 2012.
Improving Lending Activity: Recent SBA Efforts
The SBA has made major improvements to two of its programs, in the hopes of gaining widespread lender acceptance and thus significantly greater utilization. In October, 2011, the agency completely revamped its line of credit programs (CAPLine), making them easier and more user-friendly for the lending community. In June, 2012, it unveiled an improved Small Loan Advantage program designed to streamline processing of loans for $350,000 and under.
Small Business Administration and Economic Headwinds
It is, of course, too early to say whether or not the SBA’s efforts will ultimately prove successful in helping to pull the United States out of its current malaise. The headwinds of falling real estate values, tepid growth, high unemployment and below-normal consumer confidence continues to plague the economy. However, it is clear that SBA is helping to lead the way, and that the results have been positively correlated with the recovery.
Long term loans at reasonable rates and fees for a small business community in dire need of financing. An example of the government getting it right.
Bureau of Economic Analysis. National Economic Accounts. (2012). U.S. Department of Commerce. Accessed July 15, 2012.
Federal Reserve Bank of Dallas. U.S. Economic Activity. (2012). Accessed July 15, 2012.
Portal Seven. List of Failed Banks 2008/2009/2010. Accessed July 15, 2012.