SBA Announces Changes in Lending
In response to the current credit crisis, the Small Business Administration has announced change, effective immediately. All new SBA loans can now be made with a LIBOR rate (London Interbank Offered Rate) in addition to the prime rate. This means that lenders will now be able to make money where they previously could not, and this could be a catalyst for more lending to small business owners.
In addition, SBA loans will now be assembled into pools for sale in the secondary market which will also have a positive effect on profitability for SBA guaranteed loans.
Worried about small business access to capital, the SBA has moved quickly to make these changes, but lending standards continue to tighten, and loan demand has slowed. According to the Federal Reserve Board’s October 2008 Senior Loan Officer Opinion Survey, 75% of respondents indicated they had tightened their lending standards on C&I loans to small firms. And the October survey also suggested a further weakening in loan demand over the past three months.
In the current loan environment, small business owners continue to rely on business credit cards to manage their cash flow. John Tozzi recently wrote about this significant trend in Business Week; according to his article, a recent National Small Business Association survey showed that the percentage of firms using credit cards jumped from 16% in 1993 to 44% recently.
