[:en]For banks, originating smaller loans is often less attractive than larger, and therefore, more profitable ones. Since the energy and time spent is usually about the same, borrowers looking for smaller amounts often have either few options or unappealing ones, whether it be through micro financing or for a small business.
After the financial crisis, the number of loans for less than $150,000 guaranteed by the Small Business Administration (SBA) fell from 24 percent in 2007 to 9 percent in 2009. Previously, the SBA had created programs specifically for loans under this amount, including the SBA Express, which allowed business owners to use their personal credit. There was also Community Express, which focused on small businesses in struggling areas. When these were unsuccessful, borrowers looking for a $150,000 or less loan were forced to compete with small businesses with a larger amount, making qualifying for a loan this small much tougher.
Fortunately, this practice and the SBA’s budget for next year, may change. According to an article in the New York Times, the SBA will be waiving the fee it now charges banks for guaranteeing the loans.
“The Obama administration says that the agency can afford to do this and still get by on a smaller overall budget for 2014 because SBA lending has gotten less risky with an improving economy and requires a smaller taxpayer subsidy,” the article read. “The proposal would require Congress’s approval.”
It’s understandable why banks would prefer larger borrowers. Since the crisis, many lenders have looked into borrowers’ qualifications much more intensely than before, and, consequently, would prefer a borrower that would result in more profits. But with the new SBA budget, and credit and risk management tools, financial institutions may be more willing to turn to small business. New technology and fewer resources determining if a borrower is qualified are allowing lenders to reach a wider range of borrowers and benefit from the SBA’s incentives.
After the financial crisis, the number of loans for less than $150,000 guaranteed by the Small Business Administration (SBA) fell from 24 percent in 2007 to 9 percent in 2009. Previously, the SBA had created programs specifically for loans under this amount, including the SBA Express, which allowed business owners to use their personal credit. There was also Community Express, which focused on small businesses in struggling areas. When these were unsuccessful, borrowers looking for a $150,000 or less loan were forced to compete with small businesses with a larger amount, making qualifying for a loan this small much tougher.
Fortunately, this practice and the SBA’s budget for next year, may change. According to an article in the New York Times, the SBA will be waiving the fee it now charges banks for guaranteeing the loans.
“The Obama administration says that the agency can afford to do this and still get by on a smaller overall budget for 2014 because SBA lending has gotten less risky with an improving economy and requires a smaller taxpayer subsidy,” the article read. “The proposal would require Congress’s approval.”
It’s understandable why banks would prefer larger borrowers. Since the crisis, many lenders have looked into borrowers’ qualifications much more intensely than before, and, consequently, would prefer a borrower that would result in more profits. But with the new SBA budget, and credit and risk management tools, financial institutions may be more willing to turn to small business. New technology and fewer resources determining if a borrower is qualified are allowing lenders to reach a wider range of borrowers and benefit from the SBA’s incentives.
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