Friday, April 10, 2009

"I s'pose we should feed the peasants" 

Small business America is getting a little chicken feed: The stimulus bill was retroactively changed by the Obama Administration last month to kick $15 billion (less than 2% of the total package) to the SBA loan guarantee program. So where does that money go? Read carefully:
The $15 billion, coming from the U.S. Treasury Department, will be used to purchase securities backed by the SBA-guaranteed loans in an attempt to jump-start the secondary credit market for small businesses. Banks that offer SBA-guaranteed loans have hit a lending wall in recent months, as the secondary market is frozen, so banks can't get the old loans off their balance sheets to free up capital for new loans.

..."Traditionally, about half of banks offering SBA guarantees sell those loans to mortgage packagers like investment banks where they're then sold on the market to investors," says Bob Seiwert, senior vice president of the American Bankers Association. "But no one's buying those packages now, so the lenders can't make new loans."
So the guarantees don't go directly to the small businesses; all they get is a reduction in fees charged for taking out SBA-guaranteed loans. The money is to induce the big investment banks to take on these loans; the $15 billion would end up in the pocket of big banks. Will it make borrowing easier for small firms and smaller banks?

I talked to a local commercial banker yesterday after a talk I gave. He reported to me that the bank is about to be audited, in the normal course of its business. His regulator asked that all loans to non-owner-occupied commercial real estate be pulled aside. For this there had to be all manner of additional documentation to verify primary and secondary sources of funds to repay the loans. "Our impression is they don't wish us to lend any money to non-owner-occupied commercial properties." So you can guarantee all the money you want for SBA loans, but if regulators are putting up lots of barriers to transactions that money will remain parked and unused.