From the June 2001 issue of Entrepreneur

Ok, so the gradual increase in SBA lending might not show the kind of stellar growth the financial community has come to know and demand. Given the current market, however, it should be comforting just to know Uncle Sam is still around. The numbers for 2000 show an upward trend, with total SBA-backed financing, including loans and venture capital, reaching $17.96 billion in the fiscal year. That's an increase of more than $1.5 billion over 1999. Of that figure, SBA-approved loans accounted for $12.37 billion.

Those are respectable numbers, considering how much money was available to small businesses from other sources in 2000. But even the SBA's Mike Stamler characterizes the growth as "small," particularly when compared with the jumps witnessed in the early '90s, when there were fewer commercial institutions making loans to small businesses. Today, commercial banks are adjusting their loan standards to increase small-business lending, and entrepreneurs are enjoying more borrowing options and tend to go to the SBA only when they can't qualify for a nonguaranteed conventional loan, says Stamler. He calls the SBA the lender of next, if not last, resort.

That may be why the dollar amount of 7(a) General Business loans increased a mere 4 percent last year. It's growth, sure, but nowhere near that of the Microloan program, which increased by more than a third from 1999 to 2000. The Certified Development Company (CDC) loan program for 504 loans, on the other hand, is the only category that showed a slight decline, down from $2 billion in 1999 to $1.8 billion.

Patricia Ferm, president of SBA Loans 4 U Inc., a Jacksonville, Florida, consulting firm that provides help for small businesses trying to get government-sponsored loans, says 504 numbers may be down because lending institutions tend to recommend 7(a) loans because they're more profitable for the lender. In many cases, though, CDCs are better for entrepreneurs because they allow qualified borrowers to lock in 20-year fixed rates while putting only 10 percent down. The problem, says Ferm, is that they're not being told about it.

The jury's still out on just how 2001 numbers will fare. President Bush's proposed budget would cut SBA appropriation by roughly 40 percent, and that could be cause for concern. But the SBA isn't planning to cut programs, and Stamler maintains that substantial room for the cuts can be found in SBA programs without sacrificing quality of service to small businesses. Still, entrepreneurs might not be happy with the "modest fee hike" that will be charged to borrowers for 7(a) loans greater than $150,000 under the Bush plan. Stamler points out, however, that CDC loans experienced a similar change in 1997. They were put on a zero appropriation diet, so the program was supported by fees that decreased over time. "It's a way to continue to fund the programs at a level that's equal to or higher than this year's in terms of program levels and still take into account the budget pressures in Washington on all departments," he says.

As of March 2001, total SBA lending was trailing figures from the same period in 2000. Stamler says it's difficult to say exactly why, or what it indicates for the rest of the year. "How many, in the face of warnings about the direction of the economy, have decided to forgo or postpone the spending they needed to borrow for?" he asks. Another factor is whether commercial lenders are going to pull back conventional lending more over this year, perhaps in response to warnings from the Fed about increasing nonperformance in loans, says Stamler. "Typically, then we see more applications from small businesses for SBA guarantees."

But as for entrepreneurs putting growth on hold in tough times, it's hardly a foregone conclusion. Or at least it wasn't for Mike Rogers, 33, president of Apopka, Florida-based Spectrum Printing, who just got a 10-year fixed-rate CDC loan to expand his nearly 5-year-old business by purchasing another nearby printing company. "We've been growing each year, and we saw a way to continue that," he says. "[The recession] was a consideration, but if it does happen, I don't think it'll be a long-term thing. And my business is."


C.J. Prince is a New York City writer who specializes in business topics and the executive editor of Chief Executive magazine.