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How will the SBA Budget Cuts Effect SBA 7a & 504 Lending? 

The good news is that if you look at the SBA lending budget in the years before the 2010/ 2011’s Stimulus Packages, you’ll see that the 2012 budget (which begins in October 2011) has remained virtually the same as previous years.  Total budget amount is $818 million.  With the Stimulus Package the budget was over $1.6 billion. The Stimulus money represents approximately half of the $1.6 billion.

One of the bigger question that impacts this, is when will the other markets for owner occupied commercial mortgages return to help fill the void of slow lending that the Stimulus Package/SBA helped fill?  Currently, SBA 504 loans and SBA 7a loans remain the main source of capital for small businesses that seek to purchase or refinance commercial real estate loans.  Conventional bank lending, though improving, is still far from healed. 

Wall Street type loans, conduit and CMBS (Commercial mortgage backed security) type loans are also slowly improving, but are still in much worse condition than conventional bank loans.  In 2007, $550 billion was funded with these loans and experts are hoping/predicting that $35 billion will be issued this year.   This market is still a shadow of what it used to be.   

Getting back to the budget, other unknowns/concerns include what exactly will be cut from the SBA?  There is no doubt waste and inefficiencies exist that can and should be eliminated (such as the SBA micro loans that have a much to extensive underwriting process, relative to the loan amounts granted, among many other failed programs).  If major cuts are made to staffing as some believe, the result would be a slowdown in the turn times/underwriting process.  This would be yet another frustration that small businesses would have to endure.

All in all, despite the cuts to SBA loans, this type of funding will remain the main source of commercial mortgages for small businesses in 2011 and 2012 and we do not predict that money appropriated will run out.  The primary reason why demand will remain high is that SBA lending is the most reliable form of financing out there.  Borrowers have few options besides the SBA.  Conventional bank lending will likely continue to improve but will be reserved for the strongest of borrowers. 

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