The Small Business Administration Fiscal Year 2011 budget will support $55 billion in lending through the 7(a) program.
The SBA knows that capital will help stabilize the current economic conditions, $39 billion well be able to be supported in loan activity. With loan repayments, total expected credit activity could be as high as $55 billion. President Obama in the State of the Union proposed shifting funds from TARP to community banks to lend money to small business. Including the SBA current financing capability and the Obama community bank plan, in theory, would give small business access to $85 billion in capital. No details have been given on how this program will work, an announcement is expected in a few weeks, according to the White House website.
A breakdown of how the SBA Funding will be disbursed:
- The 7(a) will receive $165.4 million in subsidy, and this will support over $17 billion in lending authority. With $1.5 billion in revolving credit, the 7(a) will be able to support $55 billion in loan activity.
- The 504 loan program will have $7.5 billion in lending authority in conjunction with the CDC (Certified Development Companies)
- As For the SBA Microloans, $3.8 million in subsidy will be set aside. This will bring the level of support for lending upwards of $25 million.
SBA funding has had a mixed bag of success and failure over the past few years. The SBA has increased the guarantee percentage in some loans programs to 90% to increase lending activity. The Small Business Administration does not lend money; they guarantee funds that commercial banks loan. They have no authority over the bank to force institutions to lend.
Because of this, the SBA has tried to make lending as attractive to banks as possible. One way is to have plenty of funds available for guaranteeing the loans. The SBA has also suggested legislation increase the loan amounts that the guarantee will cover from $2milion up to $5 million. They are also calling for the Microloan program to increase to $50,000.