In the most recent NFIB poll, small business owners were feeling rather grumpy. They were not planning to add to inventories as inventories were already too high. And they were not in the mood to invest in capital expenditures right now. So when the news came out this week from the SBA that they had set a record for making loans, I was curious. What could all those loans be going for if small business is not in a growth mode right now?
The SBA backed a net 100,197 loans totaling $19.1 billion under its two primary small business loan programs during the 12 months ending on Sept. 30, 2006. Both the number of loans and the dollar amount is a single-year record for the agency. The previous records were set last year, when SBA provided a net 94,554 loans worth $18.1 billion.
I have three possible theories.
Theory One
The answer may be found in another question in the NFIB survey. Small Business owners report that credit is harder to come by.
While the SBA trumpets 100,000 loans, what may be beneath those record loans is weaker financial statements combined with a nervous banking industry that is tightening its credit standards as the economy weakens. These two factors could be what has led more small business owners to seek SBA guarantees. Let's face it. Getting a loan with SBA backing is more complex than a straightforward business loan. It requires a significant amount of paperwork. Entrepreneurs will only go the SBA route if they are told to. And they are told to when they do not meet normal bank standards for business loans.
So Theory One would conclude that times are getting tougher for small business and they need help getting bank credit to keep afloat. After all, the biggest loan program from the SBA is their 7(a) program for working capital.
Theory Two
The SBA has gotten a lot of bad press and is under increasing political pressures to perform. Backing more loans is one way for the SBA to show success and justify its existence. The SBA may simply have been more effective in marketing their programs.
Theory Three
We are seeing a record number of small business start-ups each and every year as our economy continues in its current transformation from the old economy of the 1900s to whatever new economy awaits us after this period of transition ends.
Perhaps the record number of loans backed by the SBA are simply at artifact of the growing number of small businesses in America. The SBA may be just hitching a ride on the current economic wave.
