SBA lending has been in a complete state of confusion for 2 years now.  The handling and roll out of the Stimulus Package, has created many problems that has worsened this troubled market.  And the bad news has not been just for borrowers though – it’s also been for the funding banks as well.

Many banks that were not interested in doing SBA loans before the credit crisis, have gotten into the business due primarily to the 90% guarantee.  They have seen it go back and forth between 75% and 90% four times now as the money in the Stimulus Program ran out and was then re administered.  Many of these banks are not interested in lending if the guarantee is only at 75%.  Others cannot due to capital  reserve ratios and other restraints set by the FDIC. 

Unfortunately for banks (and for borrowers), loans that were in process, but not far enough along in the approval process to be grandfathered in into the 90% guarantee, had to be resold (to the borrower and banks loan committees) and repackage with a 75% guarantee.  However many banks simply would not do transactions at 75% and therefore either straight declined files and or asked borrowers to come in with another 15% cash or assets.  For most cash strapped borrowers, this simply was not achievable.  The end result for the bank and borrower is more declined loans, wasted time for both, and wasted money for borrowers on non refundable third party fees.  

Another more difficult negative result to quantify of the poorly administered Stimulus Package has been the emotional distress to borrowers that have spent months or years searching for adequate financing.  Many have lost heart and have a “why bother” mentality.  Surely the recent drop in SBA business loan applications is due in part to borrowers not having enough belief that their efforts will be rewarded with a closed loan.

The SBA stimulus package has helped the industry, there is doubt to that.  However the execution and planning of how the money has been dispersed has been a disaster.