SBA Prepares Emergency Small Business Loans

Congress has appropriated $255 million to the Small Business Administration (SBA) for emergency, essentially interest-free loans as part of the economic recovery bill. The SBA will have to act quickly to get the money ready to roll out to small business owners as congress gave it just 15 days on Friday to issue guidelines for what is known as the Business Stabilization Program.

The loans will be available to companies that already have bank issued business loans. Congress’s design is to help struggling businesses keep up with their bills, make interest payments, and pay down debt. Up to $35,000 will be available for companies and repayment won’t start for 12 months. The full loan must be repaid within five years.

The loans will actually be coming from individual business owners’ banks, to whom the SBA will offer a 100 percent guarantee. If the owners default, the SBA is on the hook for the amount due. The SBA will also fully subsidize the interest on the loans, making the money essentially interest-free for businesses and risk-free for their banks.

While $255 million may not seem substantial in the larger picture these days, this sum will be used only to cover the administration fees and interest subsidies on the bank written loans, and can actually support several billion in borrowing. The sum is intended to fund the program through September 2010.

“The Economic Recovery Package is a good step toward making it easier for small businesses to get loans and venture capital,” says Small Business and Entrepreneurship Committee Chair Mary Landrieu, D-La in a press release. “The bill will make it possible for us to pump about $16 billion in loans and venture capital into small businesses in our communities, creating or saving hundreds of thousands of jobs. By reducing fees on SBA loans while increasing the SBA loan guarantee on 7(a) loans to 90 percent, the bill will make it easier for borrowers to afford new loans and provide a higher level of protection for risk-weary lenders.”

According to an article on

“We want to get everything in the bill in place as quickly as we can,” said SBA spokesman Mike Stamler. “We’re doing the best we can.”

The SBA hasn’t started discussions with banks about how the program will work, but lenders expressed cautious optimism that it will help strapped small businesses.

“We have plenty of customers that would be interested in that type of loan,” said Michael Downes, chief lending officer of Unity Bancorp (UNTY) in Clinton, N.J. “We just have to guard against throwing good money after bad.”

Photo: Creative Commons, Gnerk