Overview of SBA Economic Development
Programs and the Impact of the Recovery Act
Access to Capital
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SBA guarantees loans on reasonable terms through
financing partners to small businesses that are unable to
obtain funding from conventional lenders.
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Balances the need to make capital available with the
need to provide appropriate monitoring and oversight
to be good stewards of taxpayer dollars.
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Capital Access manages an existing portfolio of roughly
$80 billion in outstanding loans.
Key program offices and functions:
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Office of Financial Assistance: lending policy, product
development, technology systems
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Office of Financial Program Operations: processing loan
applications, servicing requests, and paying on the SBA guaranty
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Office of Credit Risk Management: lender oversight and portfolio
analytics
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Investment Division: small business investment companies (SBIC),
source of private equity and mezzanine finance
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Office of International Trade: provides trade promotion, products
and services for U.S. small business exporters
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Office of Surety Bond Guarantees: guarantees surety bonds made
by private sureties to businesses that cannot a surety bond on a
conventional basis. This increases government contract awards for
small business as many contracts have a bonding requirement.
SBA 7(a) Loan Structure
7(a) Borrower Requirements:Purpose: Working Capital, Machinery &
Equipment, Real Estate, Inventory, and Furniture & Fixtures
Size standards: Varies by industry; based on #
Employees or $ Receipts—generally under 100-500 employees
Type of Business: For Profit, Open to General
Public (Not Discriminating)
Credit Policy
• Promote small business financing when it is not otherwise available on
reasonable terms
• Cash flow lending
• Lack of collateral is not a reason to turn down an application
• Loans not meeting lender’s conventional credit policies may be SBA eligible
• Start-up businesses OK
7(a) Loan Terms
• Guaranty Percentage: 50%, 75%, 85%
• Guaranty Amount: Max. $1.5 Million To One
Borrower (Including Affiliates)
• Guaranty Fee: 2%--3.75% depending on
loan size
• Maximum Loan Amount: $2 Million
• Maturity: Up To 25 Years
• Interest: Up To Prime + 2 3/4%
(Exception For SBA Express And Community Express)
• Provides 40% second mortgage financing behind a 50% first mortgage from a private lender and in front of a 10% down payment by the borrower.
• Provides fixed-rate financing that can be used for purchasing or constructing facilities or for purchasing heavy machinery & equipment.
• The maturity is either 10 years or 20 years.
• Recent fixed interest rates have been below 6% for 20 year financing.
• The maximum size 504 loan varies from $1.5 to $4.0 Million.
• Maximizes public/private sector financing.
• Fulfill community/public policy goals.
• Source of job creation—CDC’s portfolio must create or maintain one job for every $65,000 of program financing.
• CDCs:
¾ Are mostly nonprofit organizations established to promote economic development ¾ SBA certifies and regulates CDCs
¾ There are approximately 270 CDCs nationwide
SBA’s 68 district offices and hundreds of resource partners provide
counseling and training to over 1 million small businesses every year
• Small Business Development Centers—nearly 900 branches, many at colleges and universities throughout the United States, provide education and assistance to small business owners.
• Veterans Business Outreach Centers—8 centers that have programs targeted to the needs of small business owners who served in the Armed Forces.
• SCORE—12,400 volunteers in 364 chapters. Experienced business
owners and executives provide free confidential advice on a wide array of business problems. Over 8.5 million entrepreneurs have relied upon
SCORE.
• Women’s Business Centers—111 locations that comprise a national network providing business training, counseling and other resources to help women start and grow successful businesses.
SBA works to ensure that small businesses receive
23% of federal contracting dollars.
Procurement Center Representatives increase the share
of Federal procurement awards for small businesses at
major federal and military installations.
Commercial Market Representatives are stationed around
the country to conduct compliance reviews of prime
contractors, counsel small businesses on how to obtain
subcontracts, conduct matchmaking activities to facilitate
subcontracting to small business, and provide orientation
and training on the Subcontracting Assistance Program for
both large and small businesses.
SBA promotes job growth, capital investment, and economic
development to historically underutilized business zones,
referred to as HUBZones, by providing contracting
assistance to small businesses located in these
economically distressed communities.
Participants in the 8(a) program receive business
development assistance from the SBA and other
government agencies. The primary benefit is the ability to
receive preferences in various types of government
contracting competitions.
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Disaster Assistance
• SBA’s low-interest, long-term loans to homeowners, renters and businesses of all sizes following a disaster are an important form of federal assistance for the repair and
rebuilding of non-farm, private sector disaster losses.
• The disaster loan program is the only form of SBA assistance not limited to the small business community.
• It is also the only direct loan program administered by the SBA.
• Disaster loan applications are mailed out to individuals and businesses that register with FEMA following a Presidential disaster declaration.
• Loan applications can also be picked up at any Federal/State Disaster Recovery Center or SBA Outreach Center where SBA personnel are available to answer
questions about the application process, provide help with filling out forms, and accept completed applications.
• SBA recently introduced an electronic loan application, available at
https://disasterloan.sba.gov/ela, which allows disaster survivors to apply for assistance online. It has capacity for 5,600 applications per hour.
Goals:
1.
Restore Access to Capital for Small Businesses:
Increase Lending across SBA Loan Programs
Restore Healthy Secondary Markets
2.
Support Vulnerable Businesses:
Provide America’s Recovery Capital (ARC) Loans
Expand Micro Lending
3.
Facilitate Recovery Opportunities:
Surety Bond Guarantees
Small Business Contracting Opportunities
Program Changes
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Fee Reductions—eliminated borrower guaranty fees in 7(a) and
borrower application fee and third party lender fee in 504
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90% Guarantees—increased guarantee on 7(a) loans from
75%-85% to 90%
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Expanded Microloans
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Added refinancing component to 504 loans
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Higher limit on surety bonds in certain circumstances
New Programs
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America’s Recovery Capital Loans (ARC Loans)
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Secondary Market for 504 First Mortgages
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Secondary Market Lending Authority to make emergency loans to
broker dealers if credit market seize up again
Highlights:
• Significantly increased loan activity: As of March 5, SBA approved $16.5 billion in loans with Recovery Act provisions, and supported $22.2 billion in lending to small businesses. • From Feb. 17, 2009 to present, weekly SBA loan dollar volumes rose over 85% in the 7(a) and 504 programs, compared to the weeks preceding ARRA’s passage. • Creation or retention of small business jobs: From Feb. 17, 2009 to the present, small businesses are reporting that Recovery Act‐backed 7(a) and 504 loans will help them create over 183,000 jobs and retain over 366,000 more. • In addition, small businesses report that Non Recovery Act‐backed loans approved during the same period are helping them to create or retain over 32,000 jobs. • Broad‐based support to small businesses: From Feb. 17, 2009 to the present, a significant share of Loans with Recovery Act provisions has gone to rural (24%), minority‐owned (21%), women‐owned (19%), and veteran‐owned (8%) businesses. • SBA implemented the ARC loan program: As of Mar. 5, 2010 SBA approved 6,484 loans totaling $209 Million.NOTE: All loan volumes are gross loan value approved. Typically, due to cancellations and loan size reductions, 15 – 20% of gross approval value does not get disbursed.
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From Feb. 17, 2009 to the present, over 1,166 lenders that had not
previously made a loan since at least 2007 made a 7(a) loan.
President Obama has made several proposals to further
support small businesses.
Extend the
Recovery Act
Provisions
Extend the increased guarantees and reduced fees, which are
both highly successful incentives to increase small business
lending.
Larger Loan
Limits
Permanently increase the cap on 7(a), 504 and microloans to
provide support to a wider array of small businesses.
‐ Increase 7(a) loans to $5 Million ‐ Increase 504 loans from $2 Million to $5 Million, and from $4 Million to $5.5 Million for manufacturers ‐ Temporarily increase limits on SBA Express from $350,000 to $1 million Commercial Real Estate RefinancingTemporarily allow eligible commercial real estate mortgages
to be refinanced into SBA 504 loans to help small businesses
avoid foreclosure and save jobs
Additional Proposals
Small Business Lending Fund
• For banks with assets of under $10 billion (which account for more than half of the nation's small business lending).
• Banks would be able to borrow money from the Treasury at a dividend rate as low as 1% if they use the cash to make more small business loans this year than they did in 2009.
• Proposal would ask Congress for a separate lending facility that is not affiliated with TARP.
• Banks with less than $1 billion in assets would be able to receive capital infusions of up to 5% of their assets--Banks with assets of $1 billion to $10 billion would be eligible to access investments totaling 3% of assets.
• The dividend rate for the capital would start at 5% and decrease as the bank increased its small business lending. The bank has five years to pay Treasury, allowing the bank to pay the Treasury back gradually.
• More than 8,000 of the country's 8,400 banks would be eligible to participate under these terms, according to government estimates.
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The President has set a goal of doubling U.S. exports in the next five
years, which will help support good, high paying jobs in
manufacturing, services, and in agriculture.
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Since 2003, America’s small business exports have grown about 80%.
They now account for nearly $500 billion in annual sales.
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However, small business still represents only about 30% of export
revenues, and more than half of small business exporters only ship to
one country.
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SBA is working with its partners across the federal government to
increase both the number of exporters and the number of countries
they ship to.
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As a part of the National Export Initiative, SBA is working to identify
small businesses who are interested in exporting, prepare them to
export, connect them to international markets, and support them with
loans and counseling.
The mission of SBA's Office of International Trade is to:
enhance the ability of small businesses to compete in the global marketplace; facilitate access to capital to support international trade;
ensure that the interests of small business are considered and reflected in trade negotiations;
and support and contribute to the U.S. Government's international agenda.
The SBA delivers its export loan program through a network of International
Credit Officers located in U.S. Export Assistance Centers throughout the
country.
These specialists are available to explain SBA’s export lending programs, the application process and to guide exporters in selecting appropriate payment methods. They can also link companies to specialists for increasing export sales and managing foreign payment risk.
