Since the government shut down I have heard more about small-businesses from politicians on both sides of the house then I have heard since the election season. As both side’s position and posture, the plight of main street businesses is back in their vocabulary.
One of the topics that they love to address is the shutdown of the SBA administration and its impact on government guaranteed loans in process. It’s been widely quoted that an average of $93 million dollars of loan guarantees are approved in Washington each day, and this shutdown is having a terrible impact on borrowers who are impacted by it.
I don’t want to diminish the pain on the borrowers who are caught in the cross fire and stuck. This is not a pleasant experience for them. But I think the issue at hand is a much bigger one. SBA loans, which are the ones that are impacted, make up 1.45% of all the small-business loans held by FDIC regulated banks. And if one was to take into account, the loans made by private lenders to small-business owners that are not tracked and reported, the percentage of SBA loans in the total pile would be even smaller.
So the truth is that the SBA, which I advocate for and believe is an important program, makes up a tiny percentage of all loans. And while politicians on both sides of the house are focused on this population to try earn political points, they’re not focused on the big issue.
If the SBA approves an average of $93 million of small-business loans today, there is a much higher number of loans that are flat our rejected by SBA lenders every day, and never make it to Washington. Despite promises to the contrary from big banks across the country, we remain in a tight credit squeeze where it’s extremely difficult for many small-business owners and entrepreneurs to get the loans they need at reasonable prices to grow their businesses and add jobs.
We have hardly heard boo from politicians about this access to capital crisis since the election. And only now that there is political gain to talk about small-businesses it seems like we’re back in the spotlight again. This is frustrating.
The entire fiasco makes me dream more about the day when the private sector will come together to find ways to get reasonable priced capital into the hands of entrepreneurs with minimal nor no government help. I am not excited about the supposed innovation coming from merchant cash advance lenders who are lending to small-business owners at exorbitant rates.
Interestingly, there has been some movement over the past few months with private lenders offering more reasonable terms in the market. As examples, we’ve seen www.fundation.com and www.dealstruck.com arrive in the market who are offering small-business owners longer amortizing loans at more reasonable rates then the cash advance lenders.
That said, these efforts are just putting a pinky in the water. The charades in Washington over the past few weeks make me more determined than ever to find ways to work around the government and get the job done while supporting small-business growth. How can we do this together? Who is innovating in this space? Please share your thoughts and suggestions.