According to the Small Business Administration, small businesses received a greater volume of SBA-backed loans last year than ever before. Under the flagship loan program of the SBA, a record sum of $19.6 billion was issued as loans in fiscal 2011. 53,706 businesses received these funds to support their growth and expansion plans.
In 2010, the SBA expanded the scope of its loans to make a larger number of smaller businesses eligible for the loans. It raised the limit of loan amounts it would back from $2 million to $5 million. However, the larger pool had a side effect because the banks increasingly favored the larger loans, which were sought by relatively stronger and larger businesses. Very small businesses with smaller loan requirements got somewhat left behind in this process.
From the banks’ point of view it consumes the same amount of work to underwrite and process a small loan and a large loan. It takes the same amount of analysis and documentation procedure, which effectively raises the cost of a smaller loan. Therefore, banks are attracted towards larger loans where they can make their money. The net result of this approach was that in 2011, only 29,682 small businesses received loans of less than $150,000 compared to 34,238 businesses in 2010.
The dollar volume of the loans has seen an increase of 58% over 2010, and a 113% jump from 2009, which was the worst period of the credit crunch.
SBA administrator Karen Mills said, “We’ve had an extremely successful year … and we are back to pre-recession lending levels,” she said. “But we still have some gaps. We’re not back in [the terms of] small loans and loans to underserved markets.”