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Q&A: The New SBA Is Ready to Help

Alberto Alvarado, the district director of the SBA's Los Angeles office, discusses the agency's new stimulus-backed provisions.

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After years of budget cuts, the U.S. Small Business Administration is finally getting a $730 million boost from the American Recovery and Reinvestment Act of 2009. The stimulus bill , coupled with an additional $15 billion from the Treasury Department to buy up SBA-backed loans, are for some, an indication that the agency will play a pivotal role in economic recovery. Although the SBA doesn't issue loans directly, it facilitates through banks and other financial institutions by mitigating associated risks.

Alberto Alvarado is the district director of the SBA's office, which oversees the country's highest-volume SBA loan portfolio, valued at approximately $1.3 billion. We asked him to talk about the stimulus bill and the new programs the SBA would offer to provide access to credit, unfreeze the markets and re-inspire lending.

What is the SBA's role in the recovery?
At the end of the day, we are the messengers of hope. We have to go out there and encourage the businesses. Many, many are discouraged. Many, many have closed down. But we see the [bill] as a clear ray of hope, and certainly the best ray of hope we've had in a long time.

Are the programs going to have a visible impact?
We believe so. Starting this fiscal year [October 1, 2008], we've had a significant, significant decline in lending. In 2007, we did on average 120 approvals a week; last year, 70 a week. Last month we had about 20 a week. But once investors start to buy loans and the markets start to move, we expect the weekly number to pick up.

What's holding up the SBA loan markets?
One of the drivers in increasing loan volume has been the ability of a bank to sell a loan in a secondary market and obtain a significant premium. Then the bank could go out with increased liquidity and make more loans. Now, there are $3 billion in loans stuck in that secondary market. For about a year, banks haven't been selling, investors haven't been buying and premiums are low.

How long will the additional money be able to fund these new programs?
The funding will continue to the end of the calendar year and into next year, but that's about as much money as there is to run those programs. We think these are good programs and they will certainly jumpstart things. Whether they will be needed beyond that period is not clear at this point.

Are you expecting additional help from the federal government?
We're not looking necessarily for new programs or features because we think these are significant. Obviously there will be refinements as we go down, but nobody's thinking of these programs not netting the results [because] these measures dramatically increase the SBA's ability to help small business owners.

What's the SBA's outlook?
In concert with other things that are happening, we feel very positive about [the future]. We've seen excitement in the last few weeks, and we expect significant increase in volume and an increase in interest in our programs by the lenders and businesses.

What should business owners do to get the most up-to-date information and position themselves for loans?
Go to the website to read about the various provisions. Visit our offices and go to our events. Get paperwork in order.

Businesses will be able to contact us directly. We can put them on a track to do government contracting. We've also got lists of the most active lenders and we can put them in touch with the sources of those funds.

Breaking Down the $730 Million
Here's a look at where the money's going:

  • $375 million: Temporary reduction or elimination of loan fees and increased loan guarantees
    How it helps: Savings from lending fees (up to four percent of the loan value) can be significant. This is retroactive to February 17, when the ARRA was signed into law.

    Guarantees--essentially a promise that the government will back any defaulted SBA loan--can be up to 90 percent, up from around 75 percent. Loans submitted after March 16 carry the higher rate.
  • $255 million: Establishment of an emergency loan program
    How it helps: Essentially, these loans of up to $35,000 will be interest-free, 100 percent guaranteed and fast-tracked to help struggling businesses keep up with bills and pay down existing . Repayment won't start for 12 months, but the full amount must be repaid within five years.
  • $30 million: Expansion of the Microloan program
    How it helps: The SBA will be able to up to $50 million more in microlending and provide $24 million in assistance grants to help train business owners on relevant financial and technical topics.
  • $25 million: Increasing staff to meet new program demand
  • $20 million: Implementing the SBA's technology systems to streamline lending and oversight processes.
  • $15 million: Expanding the surety bond guarantee program
    How it helps: The limit for surety bonds the SBA can guarantee and finance is now $5 million, up from $3 million. These bonds are vital to government contracting opportunities because they guarantee the contractor will not on the contract or fail to perform.
  • $10 million: Ensuring the Office of the Inspector General is equipped to deal with additional oversight and audits of programs funded by the ARRA.

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