SOME SMALL BUSINESSES ARE unable to procure conventional financing, whether due to being startups or lacking collateral or the cash needed for the initial down payments. A Small Business Administration loan can be the vehicle that allows someone to buy a dream business, a building or equipment. If you have not been able to get a loan conventionally, ask your finance professionals to direct you to the SBA; it may provide a solution.

Small business remains the lifeblood of the U.S. economy. It is estimated 28 million small businesses operate in the country, and many look for better access to capital. About 10 percent of those small businesses are eligible for one of the SBA’s guaranteed loan programs. In 2018 the SBA reported it financed more than 60,000 small businesses through the 7(a) loan program, estimating this represents only 3 percent of the potential market, so it appears there is capacity for growth.

As a result of record levels of SBA growth, Congress mandated the agency increase its oversight of the program and participating lenders. The SBA Office of Credit Risk Management has been empowered to ensure lenders operate between the white lines and observe the program parameters. Borrower-incurred fees, credit elsewhere and other hot buttons are being discussed as a result of this new level of scrutiny. The focus on oversight is certainly warranted given the record levels of lending. Congress does not want borrowers to use a government program unless it is the only option available to the small-business applicant.

The proposed Fiscal Year 2020 budget also may impact the program and small business access to capital. Since Fiscal Year 2005, the program operated at a zero subsidy, meaning lender and borrower fees collected for each loan covered the loan losses, and the only fees to the taxpayer were administrative fees and salaries. In the last few years, the SBA collected fees in excess of $3.2 billion from borrowers and lenders which were then returned to the Treasury. This program worked well for small businesses and was not at taxpayers’ expense.

The SBA budget submitted for FY 2020 requested to increase fees 33 basis points, or $99 million, to cover program costs. The proposed budget for the first time subsidizes the agency employee salaries and expenses. The industry is up in arms at this proposal, and the National Association of Government Guaranteed Lenders is pushing for reconsideration of these proposed changes. In April NAGGL representatives testified in Congress, requesting a reevaluation of the Small Business Act this year.

The Small Business Administration guaranteed loan programs garner bipartisan support because of the importance of this sector in our economy.

The content of this article is for informational purposes only. It is not intended to be a substitute for professional financial advice. Always seek the expertise of a certified financial advisor or other qualified provider with any questions you may have regarding personal finance, investment and money-related issues.