Like the rest of the federal government, the Small Business Administration is going to get the squeeze in 2012, according to President Obama's budget proposal released Monday.
The SBA, and, most critically, the lending programs it backs, got some pretty hefty government subsidies through the Great Recession as the White House tried desperately to get capital flowing to small businesses. That stimulus cash vanishes in the government's 2012 fiscal year, which begins in October 2011.
"We have to tighten our belt, too, and we have to make tough choices," SBA Adminstrator Karen Mills said in a conference call with reporters.
In the 2010 fiscal year, the SBA received a whopping $963 million in supplemental appropriations, more than doubling its $824 million core budget for the year. That cash went toward a pricey, and largely unsuccessful, new emergency lending program, plus a very popular series of deal sweetners that helped entice banks to step up their government-backed small business lending.
The deal sweetners worked. In a time when lending to small businesses overall contracted by $43 billion, SBA-backed lending rose in the 2010 fiscal year to $12.6 billion, after plunging 27% in 2009 to $9.3 billion.
But as the economy moves toward recovery and spending has become a battleground in Washington, those stimulus efforts were discontinued on Dec. 31.
"We actually saw a big rush right at the end of the year," Mills said, as borrowers raced tried to get a loan locked with lower borrowing costs and higher government gurantees against default.
Now, borrowers and lenders are readjusting to the SBA's traditional loan terms. "We expected to see a lull, but we have started to see the volume come back," Mills said.
The guaranteed loan program has grown more costly as default rates jumped, especially on loans made between 2004 and 2008. Therefore, the SBA requested that it be given the authority to adjust the program's fees as it sees fit. The idea is to get the loan guarantee program as close to "self-sustaining" as possible, the budget proposal said. The adjustments in fees would become effective in 2013.
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