Greg Gerber posted on March 18, 2009 05:33
WASHINGTON -- The Treasury Department will commit up to $15 billion to help unlock the secondary markets for small business loans, the Small Business Administration disclosed this week.
By purchasing these securities, the Treasury Department will facilitate the ability of lenders to make new loans to small businesses by providing confidence that there will be a ready buyer for those loans in the secondary market.
In addition, the Small Business Administration is immediately implementing two key provisions of the Recovery Act – temporarily eliminating certain loan fees and raising guarantee levels on some of its loans. These steps will provide lenders with the security they need to start lending again to the millions of small business owners desperately in need of capital.
Finally, the Treasury Department issued a call for new reporting requirements designed to better track small business lending by banks and unveiled guidance from the IRS for an expanded “carryback” provision that will offer many small businesses a tax refund.
Beginning this week, the SBA will temporarily raise guarantees and eliminate fees for borrowers on certain of its 7(a) loans. 7(a) loans, which are partially guaranteed by the SBA, are issued by a bank to a small business to support its operations.
Additionally, the SBA has temporarily eliminated fees for borrowers and third party lenders on its 504 Certified Development Company Loans. These loans offer growing small businesses long-term, fixed-rate financing for major fixed assets, such as land, buildings and machinery and equipment. These loans are aimed at fostering community development, creating jobs and encouraging modernization.
Typical 7(a) borrowers are entrepreneurs looking to start, expand or acquire a small business. In many cases, the applicant may have a strong business idea, management ability, and sound financial projections, but may have a shortfall in collateral to secure a loan or equity to put into the business.
In order to qualify for a SBA 7(a) loan, borrowers must be unable to secure conventional commercial financing on reasonable terms and be a “small business” as defined by SBA size standards. In 2008, of the $18 billion in SBA backed loans, 35% went to start-up businesses, nearly 32% ($5.7 billion) went to minority owned businesses, and nearly 23% went to women owned businesses. The most frequently financed industries in 2008 were services, retail trade, accommodation/food service, construction firms, and manufacturing.
SBA-backed loans are three to five times more likely to be made to minority and women owned businesses than conventional small business loans made by banks, according to a recent study by the Urban Institute.
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SOURCE: Small Business Adminstration