Fees waived for small businesses in federally backed program
Small-business owners planning to apply for federally backed loans should do it soon, lenders say. The U.S. Small Business Administration is running out of stimulus money set aside for its 7(a) and 504 business loans.
The American Recovery and Reinvestment Act of 2009 poured $730 million into the SBA in February to help spur small business lending. The agency waived loan fees for borrowers and raised loan guarantees for banks to 90 percent from 75 percent.
As of this week, less than 30 percent of the money remains and the SBA expects to exhaust the account by late November or early December — a full month before the agency originally anticipated. It’s also likely that the funds will run out even sooner if lending accelerates in the coming month.
“When the awareness arrives among potential borrowers that there’s a finite amount of money set aside for this, there’s likely to be a surge in demand,” said Mike Stamler a spokesman for the SBA in Washington, D.C.
It’s possible that Congress will consider renewing the SBA stimulus program, Stamler said, but it’s not clear whether it would survive in its current form.
Local impact
The SBA has issued 89 loans worth $18.3 million to Clark County businesses since January. Some 64 of those loans worth $13 million were subsidized by recovery act funds.
The program has spurred lending by some banks that were reluctant to put more loans on their books after the financial crisis hit last year. And as the recession lifts, banks have boosted their lending while more borrowers become eligible for loans.
The number of SBA loans issued in the Portland-Vancouver metro area in September reached its highest level in more than a year.
“We’ve seen an increase in the last two months as a result of banks jumping on board,” said Russ Hooker, a lender relations specialist with SBA in Portland. “It would be really bad to have the thing sunset. … It will, to a certain extent, put a damper on lending.”
Regular charge
Without the stimulus funds, the SBA charges up to 3.5 percent of the company’s total amount for its loans. On larger loans more than $700,000, the fee waiver could mean a savings of more than $20,000. And for some small businesses with a tight cash flow, a waiver can mean the difference between qualifying for the loan or not.
Because the fees are rolled into the total loan amount and paid off over the life of the loan, the majority of borrowers write off the charge as the cost of doing business, said Scott Harvey, executive vice president and SBA manager at Fortune Bank in Seattle. Few businesses refuse a loan because of the fees involved, he said.
The bigger concern, if the stimulus program ends, is that banks will stop issuing as many loans in the absence of the 90 percent guarantee, Hooker said.
Banks, however, are optimistic that the same level of SBA lending will continue even after the stimulus funding runs out.
“It was just a temporary measure … we can’t do that forever,” said Scott Price, a vice president with Umpqua’s government-guaranteed loan department in Portland. “In 2010, we’re going to see the economy at least stop shrinking and hopefully return to some sustainable growth, and I think the program will still be popular and utilized even with the 75 percent guarantee.”
