Bankers slammed the door on lending to most retailers and other small business people at the end of 2008 and the first part of 2009, as they themselves soaked up billions of dollars in bailout money from the federal government. Now there are signs that the purse strings may be loosening, at least where Small Business Administration backed loans are concerned.
With the first stimulus bill (American Recovery and Reinvestment Act of 2009), the SBA received $730 million from the government to readdress lending to small businesses through SBA participating lenders, which include local community banks throughout the U.S. One example is Unity Bank, headquartered in Clinton, NJ. It has a commercial loan department that is responsible for making SBA loans. Unity Bank’s Senior Vice President/Commercial Lending Officer, Michael Downes, states, “The economic stimulus package has been a boon to banks and small business owners who have been struggling to get by or even to stay open throughout the recession. Several new provisions of SBA backed business loans are extremely attractive to both lenders and borrowers, allowing both to fully take advantage of favorable conditions in the small business lending market.”
While the SBA does not actually lend the money to small businesses, it does guarantee repayment of a certain percentage of the principal to the lending institution in cases where the borrower defaults on the loan. Previously, borrowers had to pay a guaranty fee (similar to points on a mortgage loan), on top of the loan principal and interest, in order to secure the loan.