Small Business Owners Aren't Getting Loans

Thursday, 08 January, 2009

Three months ago, Congress and President George W. Bush authorized $700 billion in business loans to banks and other financial institutions to bail them out of the economic downturn.

On the same day the administrator of the bailout program said it has helped stabilize financial institutions, the head of the small business administration in Columbus said local business owners have yet to benefit from the federal money, NBC 4‘s Patrick Preston reported. When Congress passed the troubled asset relief program, or TARP, the hope was to help Wall Street and Main Street. But it turns out local small business owners aren’t seeing the funds trickle down.

“We’re hearing that people are having trouble borrowing, “said Tom Mueller, director of Small Business Administration’s Columbus division. Mueller said that the terms of the TARP loans are handcuffing lenders from loaning out TARP money to small businesses. “The banks really can’t make money on those funds, “Mueller said.

Under Small Business Administration rules on a standard 7(a) loan, lenders can charge the prime lending rate, currently 3.25 percent, plus an additional 2.75 percent. This means that lenders are limited to charging 6 percent interest on an SBA loan.

But the lenders owe the federal government 5 percent on any TARP money they borrow and they pay just over half a percent in feeds to the SBA. That leaves less than half a percent balance, not including the risks and servicing costs associated with loaning money in a bad economy.

“They can’t earn anything basically off that 5 percent that they’re paying, “Mueller said. Lenders can charge higher interest rates if they want, without SBA loan protection and Mueller said that in the past year, SNA lending has dropped 30 percent in Central Ohio and 57 percent nationwide.

Mueller said he would like to see Congress lower the 5 percent return on investment TARP monies required to allow lenders to give more SBA loans to small business owners. SBA’s Columbus district is holding a closed-doors lenders’ roundtable meeting later in January to develop better ways to facilitate small business loans.

Source: http://www.nbc4i.com/