The Small Business Administration Sets a New Record for Loans

In recent SMB news, the Small Business Administration set a new record in the last fiscal year for its government-guaranteed loan programs. The Small Business Administration approved $30.5 billion in loans for the 2011 fiscal year which officially ended on September 30. That is a dramatic increase from the 2010 fiscal year numbers of $22.6 billion and the previous record of $28.5 billion recorded in 2007.

Over $12 billion in Small Business Administration loans were approved in the first quarter alone with borrowers and lenders taking advantage of breaks, or higher loan guarantees and reduced fees, that expired on January 1, 2011. However, the number of Small Business Administration loans only slightly increased from 60,711 in 2010 to 61,689 in 2011.

One reason for this is that Congress has increased the maximum size of 7(a) loans from $2 million to $5 million. This increase, along with a reduction in the number of 7(a) loans under $150,000, resulted in an increase in the average size of a 7(a) loan from $237,996 in 2010 to $365,508 in 2011.

This new trend towards bigger loans is, however, very good news due to the fact that it shows that successful small businesses are using Small Business Administration loans to expand and hire more people. In addition to that, bigger loans also tend to have lower default rates as opposed to smaller loans.

On the downside, businesses that need smaller loans may not be getting the help they need from the Small Business Administration. Agency Administrator Karen Mills stated that the Small Business Administration is addressing this problem by providing incentives to lenders in order to make smaller loans and allow community development organizations to make 7(a) loans to businesses in low-income areas.

The number of 7(a) loans that went to startups increased from 14,472 in 2010 to 15,561 in 2011 though the percentage of loan dollars that went to startups decreased from 25% to 23%. Even though lending to minorities did increase in 2011, lending to businesses owned by women declined from 18% of total loans in 2010 to 17% in 2011.

In addition to that, the $30.5 billion total does come with a few asterisks. The Small Business Administration did not actually make that volume in loans and couldn’t by law. That number represents the gross total not counting the $2 billion in canceled loans. Plus, the Small Business Administration’s 504 program, which is primarily used for real estate, usually includes two loans, one backed by the Small Business Administration and the other a conventional loan.

The Small Business Administration counted conventional loans in its 504 total of $10.3 million because those loans were also paired with Small Business Administration-backed loans. Despite that, the Small Business Administration still had a record year no matter which way you look at it.

Source: Portfolio.com – SBA Sets Loan Record