Recognizing that small business is the bedrock of the economic recovery, the Small Business Administration has made changes to its lending programs recently. The latest initiative is a permanent change to the SBA 504 loan program intended to get credit moving in the cash-strapped small business sector. These moves - part of President ObamaÂÂ’s stimulus package - come at a time when the total dollar amount of loans funded by SBA has dropped more than 40 percent since last year.
Previously, in order to qualify for the 504 program, borrowers had to be seeking funds to finance the purchase or improvement of large-scale fixed assets, such as commercial real estate, buildings or heavy equipment. Under the new rules, 504 loans can now also be used to refinance any existing fixed asset loans (not only SBA loans) to expand or buy equipment. HereÂÂ’s an overview of the rules of the revised program:
Some industry experts, while noting that the SBA move is a step in the right direction, are doubtful that the changes will bring much relief to businesses that are struggling to pay 504 loans that are due. If they are facing hard times, businesses will not be in an expansion mode and therefore won't be eligible for the debt refinancing provisions. And statistics show that 504 loans are down 41.5 percent from loans issued during the same time period in 2008. With this in mind, many pundits want to see the SBA do more to stimulate lending.
Earlier SBA initiatives generated by the stimulus package have included reducing fees for its loans and upping the guarantee on its 7(a) loans to as much as 90 percent (previously they ranged from 75 percent to 85 percent). A new emergency loan plan for small businesses caught in a cash crunch was also unveiled at the end of June.