SBA Lending Drops 50% in Q2 2010

by Victor Cheng

Q2 2010 SBA lending has dropped by roughly 50% compared with Q1 2010.

The major cause?

The government stimulus money designed to fund small business lending guarantees has been depleted.

This can be interpreted in one of two ways. One might argue that Obama should/could allocate more funding to put up as collateral for SBA guaranteed loans.

And the data clearly shows that this would indeed result in more loans issued each week.

The other way to interpret the data is that banks feel these loans are too risky to lend without these enhanced guarantees. In other words, these are borderline loans that are only getting funded because the government is willing to absorb 90% of any potential losses lenders might face.

It’s this latter interpretation that is very concerning to me. It means there are not many small businesses that are financially healthy enough to secure financing.

Keep in mind that banks must lend money to be profitable. At the moment, they’re a bit shell shocked by the losses from bad loans (for a bank the only thing worse than not making loans is making bad loans) and are being very strict on their lending criteria. And it’s clear they’re weeding out many small businesses as a result.

( Via CNN Money: SBA lending slips as stimulus funds run out)

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