SBA loans to boost small businesses

SBA loans to boost small businesses

December 18th, 2009 by Brian Lazenby in Business Around the Region

President Barack Obama is urging banks to aid small businesses by freeing up money to lend, but officials are unsure how much help that will be.

Chet Tschetter, chapter chairman of the Service Corps of Retired Executives, or SCORE, said freeing up money to lend will be beneficial, but only to a point.

"It will help certain small businesses, but it will only help those that are already weathering the storm," he said.

Banks will only lend to a company that is likely to repay the loan, so struggling businesses in need of capital to survive are not likely to get any help.

The Small Business Administration is pushing its SBA-guaranteed small-business loans, which Barry Watson, executive vice president at Cornerstone Bank, said he believes will be helpful.

He said the guarantee gives banks an added incentive to loan small businesses money.

"That gives the banks a 90 percent guarantee on the loans," he said.

He said the typical guarantee on SBA loans has been about 75 percent, but that has been upped under recent stimulus programs.

Critics of the guaranteed loans claim it potentially leaves taxpayers holding the bag, but proponents like Mr. Tschetter said it gives small businesses the funds they need to survive and grow.

"Small businesses are the first to be able to hire, and they represent the vast majority of employment in North America," he said.

Mr. Watson said the guaranteed loans allow banks to sell the guaranteed portion of the loan, which adds to the banks' liquidity.

The loans can be used for a variety of purposes including purchasing real estate if a small business intends to expand, providing working capital, buying new equipment or paying start-up costs, Mr. Watson said.

He also noted that the SBA program waives the 3.5 percent fees borrowers are typically responsible for, and tax incentives are being offered for small businesses that hire new people.

"For us it has been a very successful program," Mr. Watson said.