New SBA lending program to start Feb. 28 with heavy restrictions

SBA lending

Businesses hoping for SBA loan help may be left out in the cold. Image: Flickr / MoneyBlogNewz / CC-BY

The Small Business Administration has finally come out with the rules for a heavily anticipated new lending program. The program is supposed to offer help to businesses facing foreclosure of their buildings. The restrictions on the loans, however, are cutting out most businesses that could benefit.

New SBA lending program

In January of this year, businesses and business loan advisers started looking to the Small Business Administration for lending program rules. The program was passed by Congress in 2010, and the SBA has been working on implementing the rules since then. On Thursday, Feb. 24, the rules were officially announced. The program will offer new loans for businesses with mortgages coming due within the next 24 months and will cover underwater mortgages. However, the owner of the business will be required to put 10 percent of the loan amount on the line in cash or equity of another property.

Concerns about limitations of SBA program

The SBA lending program is intended to help businesses on the brink of foreclosure. Business watchers, however, are concerned that the limitations of the lending program could cut out so many businesses that it will be practically ineffective. The rules cut out businesses that already have short-term SBA mortgage loans, businesses that do not have enough equity or cash for the down payment and businesses that cannot pay the additional 1 percent fee. The SBA claims that these restrictions are to ensure that businesses that are truly on the edge of shutting down, but viable, get the most help first.

Opening up small business loans

Getting small businesses the help they need to stay open is a tricky challenge, especially because payday loans are generally too small to help businesses. Some businesses are going to fail, bad economy or not. Sorting out which businesses in Irving, Texas or Anywhere, USA, have a chance of succeeding is the first challenge. Ensuring that the government doesn’t loan $15 billion to businesses that can’t pay it back is also tough. The hope is, though, that the SBA is able to offer help without cutting legitimate businesses in need.


LA Times