Senators Eye New Juice for Small Companies

Buoyed by a recent rise in lending to small companies, senators want to continue bank incentives provided in the stimulus package past 2009.

Lawmakers are working on a new lifeline for small business, whose tiny portion of the federal stimulus package passed earlier this year will otherwise soon run out.

Federal officials had initially estimated that funding for enhancements to two programs designed to spur bank lending to small companies would last through the end of the calendar year. But at a Senate hearing Tuesday, Eric Zarnikow, associate administrator for capital access at the U.S. Small Business Administration, said the incentives may not last until December.

Committee chairman Mary Landrieu is pushing to reauthorize the extra funding for the SBA programs, known as 7(a) and 504 loans. The $787 billion American Reinvestment and Recovery Act provided $375 million to raise the SBA’s guaranties on some loans to 90%, eliminate some bank fees, and make it more palatable for lenders to sell small-business loans on the secondary market. Zarnikow did not say how much additional funding the agency would need to keep the programs going beyond 2009.

Other lawmakers have suggested that the programs cover larger loans. For instance, 7(a) loans are limited to $200,000.

Since the Recovery Act was signed in February, more than 1,200 lenders have extended credit under the programs. Indeed, the hearing, held by the Senate Committee on Small Business & Entrepreneurship, to a large extent presented a positive picture of results from the enhanced lending incentives. For instance, it was noted, the volume of loans processed through the SBA increased by more than 60% during the latter half of its fiscal year ended September 30, compared with the first six months. The September total of $1.9 billion was the most since August 2007.

Still, the volume of SBA-backed loans in fiscal 2009, $13.1 billion, was 27% lower than the $17.96 billion recorded in the previous year. “Despite our best efforts,” testified Zarnikow, “many viable small businesses still struggle to obtain access to capital in this challenging environment, and we will be working hard to help them.”

 

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