The statistics say that government-backed loans are on the rise, but not necessarily the number of businesses receiving the money, reports The Wall Street Journal.
Last October, the SBA expanded the pool of eligible small businesses by raising the loan amounts it would back to a maximum of $5 million from $2 million. But that larger pool made smaller loans less attractive to banks. As larger and stronger businesses applied for the higher loan amounts, some smaller businesses were left behind.
It takes as much work for a bank to underwrite small loan as a large loan, says Bob Coleman, an SBA-loan analyst in La Canada, Calif., and owner of Coleman Publishing, a trade publisher for SBA lenders.
“The amount of man hours they need to put into the analysis and documentation â€“ they are losing money on that process,” he says. “Banks are chartered to make money and if I can only do four deals a month, I’d rather work on deals that can make a larger profit.”
The result: Loans of less than $150,000 were issued to 29,682 businesses in 2011, down from 34,238 last year, according to agency documents.
Loans of less than $150,000 are often critical for small, growing businesses that can use such financing to hire, buy equipment and make other capital improvements necessary to expand.
Photo by Kevin Dooley