Smart Borrower Blog

When Will True Small Business Lending Recover?

Oct 6th, 2010 @ 7:29 PM by Amber Nelson

Since Congress passed the Small Business Jobs Act just a few weeks ago, the government has backed another $5 billion in loans to small business owners. These hard working folks had all been on a long waiting list, the Recovery Queue so-called since the time money ran out from the last small business stimulus infusion. And I’m glad they are getting their funding – they need it and the economy needs them to get it. But I’m wondering when the private sector is going to open the capital spigot and start lending on its own again.

Since the Recovery Act of 2009, which incentivized lenders by increasing guarantees from 75 percent to 90 percent, and by waiving some of the normal loan fees, the money to fund these incentives has run out four times and been extended that many times.

Because of the government help

“tens of thousands of small businesses have been able to get the capital they needed to not just survive the recession, but to grow and create much-needed jobs in communities all across the country,” said SBA Administrator Karen Mills in a statement, as quoted in a CNN article Tuesday.

Small businesses were hit particularly bad during the financial crisis, with private capital essentially drying up around the country. The government stepped in to jump start lending again with its stimulus money and lending immediately picked up, but each time the money ran out, small business lending would tank only to be revived again with the next renewal of the stimulus.

So why are private lenders SO scared to lend in the absence of major government guarantees? Small business loans are certainly considered riskier than loans to large corporations, but at some point those smaller loans will start to pick up again. The question then is: if the government incentives were allowed to run out for good, would private lenders then stop expecting aid and start lending on their own again? That would certainly be ideal, but then again what would small businesses do for funding during that transition time? Perhaps that problem is the reason the stimulus has been renewed at least for the remainder of 2010.

About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to and

One Response to “When Will True Small Business Lending Recover?”

  1. Amber, The execution of the Stimulus packages has been terrible for the SBA programs. That fact as you correctly pointed out, that the program has run out of money 4 times is ridiculous. We almost would have been better off by not getting any stimulus money at all, and allowed the market to cycle through it. The havoc and confusion that having the money run, has been terrible costing 1000’s of borrowers many wasted hours in preparing loan application that where declined deep into underwriting and costs them thousands in wasted third party fees. This is due to the fact that many banks were willing to do loans with the 90% guarantee, but not at 75%.

    Regarding your other question, when will banks start lending again? The real answer lies in when the secondary market will fully return. Most commercial banks sell off their loans onto a secondary market. This market has been injured. But it is on the mend. For example, the issuances on the CMBS market have double in 2010 compared to 2009.

    We are very optimistic that 2011 will be a great year for the commercial mortgage business.

Leave a Reply