Due to a jump-start of the U.S. Small Business Administration program under the Recovery Act, an infusion of federal monies allowed for the temporary elimination of the SBA guaranty fees to borrowers and increase of the SBA loan guarantees to lenders up to 90 percent.
Although these federal funds have currently been tapped out and the programs themselves have reverted to the original fee and guaranty amounts, it is hoped that more stimulus help is on the way and that SBA loans will continue to grow in popularity, officials said.
“We’ve seen a surge in SBA loan requests this past year,” said Charles Millirons, Jr., vice president and relationship manager at Cornerstone Community Bank, a SBA Preferred Lender in the Chattanooga market. “These new programs and incentives have allowed us to provide financing for eligible small and start-up businesses that might not get conventional financing otherwise.”
Typical SBA loan customers 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 historical figures and/or projections, but may have a small shortfall in collateral to fully secure a loan or a little less equity than a lender normally requires to put into the business.
In order to qualify for an SBA 7a loan, the most common small business loan, borrowers must, among other things, be unable to secure conventional commercial financing on reasonable terms and be a “small business” as defined by SBA size standards.
“Under these current economic conditions, SBA loans can really help bridge the gap in providing financing to certain businesses,” said Mr. Millirons. “With mitigated risk to the lender and attractive terms for the customer, SBA loans can be a real win-win solution for the bank and the borrower alike.”
There are a number of different SBA loans available to small businesses, including the 7a, Rural Lender Advantage (RLA), 504, Express and Patriot Express, the latter of which is available to a 7a-eligible type of business that is at least 51 percent-owned by a person with a military affiliation. The average turnaround time by the SBA for loan approval after approval by the lender for a 7a loan is seven to 10 business days, and even shorter for an Express or Patriot Express loan, which is typically one business day.
Businesses and their owners must meet certain criteria to qualify for each of these loans.
“We hope small businesses will take the opportunity to ask their banks about the SBA loans that might be available to them,” said Acting Administrator Darryl K. Hairston of the U.S. Small Business Administration in a press release issued earlier this year. “And, we encourage community banks and other lenders to work with us to reach as many qualified borrowers as we can during these difficult times.”