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Will New SBA Programs Get Banks Lending?

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During the downturn, the Small Business Administration tried mightily to get big banks to lend to small businesses with some success. This year brings a new round of effort -- the SBA has two new programs that aim to stimulate more bank lending to entrepreneurs.

The question is, will they be more successful than non-starters such as the oft-criticized ARC loan?

The SBA's new Small Loan Advantage and Community Advantage programs both look to stimulate lending to business owners, but in different ways.

Small Loan Advantage offers an 85 percent guarantee on loans up to $150,000 and a 75 percent guarantee on loans up to $250,000. The kicker is, this program is designed to cut red tape.

Forget the usual reams of business-loan paperwork -- the Small Loan Advantage program promises approval in minutes through electronic filing on the government's e-Tran system. The application is only two pages long. All 630 banks currently in SBA's preferred lender program can participate.

Community Advantage is intended to stimulate more lending among "underserved communities" -- such as minorities and within inner-cities, along with veteran-owned businesses. Loans will be made by "mission-focused" financial institutions such as community lending agencies or micro-funders. Loan maximums and guarantees are the same as in the Small Loan Advantage program, but the paperwork will be more traditional and take 5 to 10 days for approval, using the same two-page application. Doubtless banks will want to spend more time vetting companies that may have a riskier credit history.

Once they get evaluated by the SBA, community lenders can be granted a "delegated authority" status to make loans -- meaning approvals rest with the lender. That should cut the timing down, too.

It all sounds great, but will banks take the bait and make more loans? We'll have to wait and see. The SBA started taking applications for both new programs on Feb. 15. At a time when some are talking about cutting SBA funding, the success of new programs like these will be closely watched.

Will the new SBA programs help more small businesses access loans? Leave a comment and let us know your take.

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