Recovery Act Means More Small Business Loans in Chicago
By Kevin Robinson in News on Aug 31, 2009 5:20PM
Among the fallout from last year's economic meltdown was the virtual standstill of the credit market. With banks near insolvency and others unsure what would happen next, everyone from home and car buyers to small businesses to most of the American auto industry were unable to secure lines of credit for regular business purchases. The American Recovery and Reinvestment Act, (ARRA or "the stimulus") provided over $700 million to both waive fees and increase guarantees from the Small Business Administration. And according to an analysis by Crain's, it looks like it might be working. That's because government-backed loans to small businesses are running about 50 percent higher nationally now than they were in Februrary, before the bill was enacted. Among Chicago-area businesses, that number is even higher.
Another key ingredient in the increase in loans to small businesses is the increase in loan guarantees from the SBA. Since the government tends to work through commercial lenders, “that 90% loan guarantee has been a godsend,” Jeff Scott, executive vice-president in the Schaumburg office of First Colorado National Bank, told Crain's. “We were effectively shut down for four or five months.” They're now able to take on larger, potentially riskier loans. That's because the primary loan guarantee program the SBA uses makes loans available to existing or up-start businesses that might not be eligible for traditional business loans. And it's flexible in what the money is made available for, be it working capital needs, such as plant and equipment needs, real estate and property acquisitions and debt refinancing. That means that more small businesses can take on the risks associated with growing their business, and banks can make those loans with the security of the SBA behind them.
One note of caution, though. While Crain's noted that lending is up in Illinois, it's still down from last year by almost 60 percent. So while the SBA has been able to back more loans to small businesses, not everyone is ready to get their feet wet in this economy.