According to regional Small Business Administration (SBA) executive Don Spry, small business loans are down. Normally, according to Spry, SBA lending goes up during a recession.

“We should be a lending source of choice because of the guarantee that we provide,” Spry said. Depending on the type of loan, the SBA will guarantee forty to eighty percent of the loan, taking that off the bank’s books. Spry said that banks are more leery to loan right now because of the secondary credit market, making it harder to pool loans together.

“The key right now is trying to unthaw the secondary market,” Spry said. Part of that process will be the Term Asset-Backed Securities Loan (TALF) program which will lend money to companies with eligible asset-backed securities geared towards the consumer sector for credit exposures in auto loans, student loans, credit card loans or SBA loans. The start date for TALF was still under negotiation by the Federal Reserve at press time.

Recently, at the 4th Annual SCORE Banker’s Breakfast, David Lucht, President and Chief Operating Officer of Live Oak Bank gave a presentation about how SBA loans can help banks.

“We love the SBA and our whole bank is built around it,” Lucht told the audience at the Feb. 6 breakfast. Live Oak Bank mainly lends to veterinarians using 7(A) SBA loans. “One of the reasons we like SBA is capital efficiency.”

Lucht explained how banks could take advantage of the 75 percent guarantee for a hypothetical $2 million SBA 7(A) loan.

“It’s a two million dollar loan masquerading on any balance sheet as an $800,000 loan.”

Lucht also promoted SBA loans as a way to get TALF money, which is being backed by the New York Federal Reserve.

“That’s being created to buy securities–credit cards, auto loans and SBA loans,” Lucht said. “Basically they’re trying to buy a lot of loans that are frozen and start the secondary market going again.”

Sometimes SBA loans are often referred to clients who may not get approved otherwise, hurting their effectiveness.

“The big reason is a) they haven’t done it and b) it went sour. These are the reasons that banks don’t do SBA lending,” he said.

But Spry said that the SBA works with agencies like SCORE and their Coalition of Resource Partners to help clients develop adequate business plans.

For more information on TALF, visit www.newyorkfed.org.

“We should be a lending source of choice because
of the guarantee that we provide.”
Don Spry
Senior Area Manager of SBA