How is the Government Promoting Small Business Lending?
By JeFreda R. Brown, MBA
Since becoming a business owner six years ago, I have been more engaged in the issues concerning businesses, especially small businesses. There has been a huge increase in the number of business formations over the last 10 years. And what is the one thing that all new and existing businesses need? Working capital.
The government has shown an increased interest in promoting small business, particularly in the area of business lending. In that spirit, it has developed different incentives and programs to promote small business lending. Let’s take a look at some of the initiatives that the government has put in place.
The Small Business Administration
The Small Business Administration (SBA) is the federal agency created by Congress in 1953 to help small businesses. The SBA was established to aid, counsel, assist, and protect the interests of small businesses. One of the primary ways in which the SBA assists small businesses is through its Access to Capital (Business Financing) program. Through this program, the SBA provides different types of financing. The SBA guarantees these loans through lenders. The SBA offers 7(a) loans, microloans, real estate loans, disaster loans, loans to purchase equipment, and more.
Other Government Programs
The government has established a number of laws to provide incentives for entrepreneurs. One is the Small Business Jobs Act of 2010. This law was enacted to help businesses secure the resources needed to help stimulate the economy and provide jobs. One part of the law concerns business financing.
The Small Business Lending Fund (SBLF) was established under the Small Business Jobs Act of 2010. This fund provides capital to banks and Community Development Loan Funds (nonprofit organizations that fund businesses within the community). The purpose is for these banks and CDLFs to help promote business growth by providing capital. The U.S. Department of the Treasury initially invested over $4 billion into 332 banks and CDLFs under the SBLF. To date, there has been an $18.7 billion increase in small business loans under the SBLF. As of this year, there are still 77 banks and CDLFs participating in the SBLF.
The SBLF also extended some of the SBA loan programs. SBA microloans increased the maximum from $35,000 to $50,000. Loan maximums for the SBA’s 7(a) and 504 loan programs increased from $2 million to $5 million for the 7(a) program and $5.5 million for the 504 program. The SBLF also increased the size standard for businesses with less than $15 million in net worth and $5 million in average net income; this has allowed more businesses to qualify for funding.
BusinessUSA Provides Information to Entrepreneurs
Another way that the government helps promote small business lending is through its BusinessUSA website. This site was created in 2011 under the direction of President Obama. He wanted to provide a sort of one-stop shop for businesses to be able to find the information they need without having to navigate through federal bureaucracy.
The government also provides public information on banks’ lending terms and the demand for business loans on the Federal Reserve Board website. This survey is published once every quarter. According to the most recent survey from July 2016, banks have tightened their standards on commercial and industrial (C&I) and commercial real estate loans.
New Lending Opportunities Are on the Horizon
For fiscal year 2017, Congress has approved a budget allowing $871 million to go to the SBA. Of this money, $157 million is to fund business loans and $186 million is to fund disaster loans for small businesses and families affected by natural disasters.
Although the government has shown increased interest in promoting small business lending, many small business owners feel that more can be done to help. Many of the existing programs cater to small businesses that earn revenues of six figures and above each year. What about the small business owners who are not making over $100,000 in a year? Should the government dig deeper to help these businesses also?
Even though there are several programs in place to help small businesses, they have restrictions that automatically disqualify a large amount of potential borrowers. For instance, if you have a personal bankruptcy or your business is home-based, you may find it more difficult to receive assistance. Still, the future looks promising as new government programs are helping more business owners than ever before.
And keep in mind that government business loans are not the only way to finance your business. You can take out a line of credit or business loan from an alternative lender.