WASHINGTON The Small Business Administration said on Tuesday that supplemental economic stimulus funds for its two most popular loan programs have run out and new loan volumes could fall if funds are not extended.
The SBA said $375 million in Recovery Act funds for use in 7(a) and 504 loan programs were exhausted by Monday, leaving thousands of struggling but viable small businesses in limbo unless new resources can be found.
The money was used to temporarily reduce fees on SBA-backed loans and raise SBA's guarantee percentage on some loans to 90 percent from 75 percent. This saved small businesses up to $60,000 in fees, made lenders more willing to extend credit and helped lure investors back into the market for securities backed by SBA loans.
"We are continuing to work with Congress on funds to continue these programs, which have helped engineer a turnaround in SBA lending following last year's credit crunch and resulted in more than 40,000 loans to small businesses during these tough economic times," said Jonathan Swain, assistant administrator for communications and public liaison at the U.S. Small Business Administration.
The programs were authorized through February 16, and the Obama administration is seeking enough funding to extend them until that date. One administration official said this would likely amount to around $100 million.
A lack of sufficient capital for small businesses has been weighing on the U.S. economy's recovery from a deep recession. Small companies, which are a key driver of U.S. job growth, are the traditional customers of community banks.
Companies with fewer than 500 employees accounted for 64 percent -- or 14.5 million -- of the 22.5 million net new jobs between 1993 and the third quarter of 2008, the SBA said.
To accommodate businesses that can afford to wait for funding, the SBA has implemented a transition period called the Recovery Loan Queue enabling those businesses to get their loan applications in line.
Loan applications that are conditionally approved subject to the funding will be placed in the loan queue in the order in which they were approved.
"We anticipated that once we notified lenders of the November 23 transition date that we would see a surge in loan approvals, which we in fact did see," Swain said.
Last week alone, SBA supported more than $1.1 billion in lending to small businesses and since February has supported more than $16 billion, he said.
Last month, the Obama administration threw its support behind legislation to raise the maximum size of a SBA (7a) loan to $5 million from $2 million. This program provides partial guarantees on loans for small businesses that are borrowing to invest in working capital, machinery and equipment.
The administration also called for raising the maximum size of loans under the 504 program, which provides guarantees on loans to small businesses for real estate and other fixed assets for expansion that will create and retain jobs.
The amount would rise to $5 million from $2 million for standard borrowers and to $5.5 million for manufacturers.
The American Recovery and Reinvestment Act provided the SBA with $730 million for lending and investment programs, the agency said.
Of the total, $255 million was also granted for a new loan program to provide temporary interest-free loans to small businesses to help them meet existing debt payments and $30 million to expand SBA's Microloan program. At current lending rates, the interest-free loan program funds could last until around mid-2010.
(Reporting by Nancy Waitz; Additional reporting by David Lawder; Editing by Jan Paschal)