Many small businesses cannot obtain traditional financing—often because they are startups, lack sufficient collateral, or cannot afford the down payments required by conventional lenders. For these businesses, Small Business Administration (SBA) loans can be a practical route to purchase a business, acquire real estate, or buy equipment. If conventional lending has been unsuccessful, consult your financial advisors about SBA options; they may provide the financing solution you need.
Small businesses are a vital part of the U.S. economy. With an estimated 28 million small businesses operating nationwide, many seek improved access to capital. Roughly 10 percent of these businesses qualify for one of the SBA’s guaranteed loan programs. In 2018 the SBA reported financing more than 60,000 small businesses through its 7(a) loan program, a figure the agency estimates represents only about 3 percent of the potential market—indicating room for considerable program growth.
Because SBA lending reached record levels, Congress directed the agency to increase oversight of the program and the participating lenders. The SBA’s Office of Credit Risk Management now has authority to ensure lenders follow program rules and maintain proper underwriting standards. Under closer scrutiny are borrower-incurred fees, the availability of credit from other sources, and related compliance issues. This heightened supervision aims to ensure SBA programs are used appropriately and remain reserved for applicants who lack viable private financing alternatives.
The proposed Fiscal Year 2020 budget also has implications for the program and small business access to capital. From Fiscal Year 2005 through recent years, the SBA’s guaranteed loan programs operated at no net cost to taxpayers: lender and borrower fees covered loan losses, and only administrative costs and salaries were taxpayer-funded. In recent years the SBA collected more than $3.2 billion in fees from borrowers and lenders that were returned to the Treasury, demonstrating how the program operated without burdening taxpayers.
For FY 2020 the SBA requested a fee increase of 33 basis points—about $99 million—to cover program costs, and for the first time sought to subsidize agency employee salaries and expenses. The proposal drew strong opposition from industry groups. The National Association of Government Guaranteed Lenders (NAGGL) urged reconsideration and in April testified before Congress asking for a reevaluation of the Small Business Act and related changes.
SBA guaranteed loan programs have long enjoyed bipartisan support because they help sustain a sector critical to economic health. Ensuring these programs balance responsible oversight with continued access to affordable capital will be important for small businesses that rely on SBA financing to grow and prosper.
The content of this article is for informational purposes only. It is not intended to be a substitute for professional financial advice. Always consult a certified financial advisor or other qualified professional with questions about personal finance, investments, or other money-related matters.