Patrick Clark

Small Business Loan: Why the Government’s ‘Record’ Isn’t a Record

Small Business Administration boss Maria Contreras-Sweet was in New York City on Thursday to visit Bayside Milk Farm, a local business that isn’t really a dairy (it’s a food market), and to announce a small business lending record that isn’t really a record (more on that below).

The agency guaranteed $19.2 billion under its working-capital loan program in the 12 months ended Sept. 30 (PDF). To celebrate, it fired off a press release today with the headline “SBA Hits Another Lending Record in [Fiscal Year] 2014.” The sum is up from $17.9 billion last year and more than double what the agency guaranteed in 2009, but it’s not actually an all-time high.

The SBA guaranteed $19.6 billion in working-capital loans in 2011, about $400 million more than the “record” it’s touting today. Agency spokesman Miguel Ayala says the earlier numbers were abnormally high because of special stimulus measures to boost the economy during the economic downturn. That included making it easier for small business owners to get loans by reducing borrower fees and increasing the percentage of loans that the agency would backstop. The expanded guarantees bolstered loans at a time when banks crippled by the financial crisis had severely pulled back on credit.

Record books aside, the SBA’s latest lending numbers are impressive for a couple of reasons. Congress initially capped the agency’s working-capital program at $17.5 billion, but the SBA won approval to increase the cap in September, Ayala says. And a policy intended to increase lending to the smallest businesses appears to be working.

Under former agency head Karen Mills, the SBA increased the upper limit on the size of its loans to $2 million from $1 million. That move encouraged lenders to push more money to Main Street during hard economic times. Companies seeking smaller amounts didn’t benefit from improved access to capital—until the agency moved to eliminate fees on smaller loans at the beginning of the fiscal year.

Loans to minority entrepreneurs are also up overall. Most of the gains have gone to Hispanic and Asian American business owners. Lending to black entrepreneurs remains below the level it was at five years ago, according to the agency’s data.

This week’s election results, which saw control of the Senate pass from Democrats to Republicans, could make expanding any of the agency’s programs harder. While politicians are often loath to cast themselves as opposed to anything small business, Republicans have targeted the SBA in the distant and recent past. And economists increasingly have been making the case that government-backed small business loans are less effective than advertised. Contreras-Sweet may be less likely to announce another lending record next year.

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