Relief From The SBA?

Posted in Trust Business Loans News & Information on September 21, 2011

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Today, the government announced a $20 Billion pledge in small business loans to “small firms”, whatever those are.  The problem is that this only relates to SBA loans.

This really doesn’t do much for Main St.  If businesses on Main St. could get an SBA loan, they’d already have one.  SBA loans have such strict requirements that most don’t qualify.  Even if you do qualify, the banks often add on so many fees that the cost of the capital just about equals a merchant cash advance.  Then, when you take into account the time it takes to get an SBA loan, often at least three months, it just doesn’t make much sense against a cash advance.

Ridiculous Approval Rate – Why?

From the Wall St. Journal article linked to in the opening sentence, you’ll see an analysis showing that banks have approved SBA loans at a rate of 9.35%.  That’s right, less than one in ten applicants gets approved.

SBA loans are guaranteed by Uncle Sam.  This means that if a bank lends out money, even if the borrower doesn’t pay back a dime, the government will reimburse the bank!  Sounds good for the bank, right?  So, why is the approval rate only 9.35%?  Two reasons:

  • There’s so little profit.
  • With strict requirements, it takes a lot of labor cost to process them.

With little profit and high labor cost, the banks add on tons of fees to make it profitable for themselves. But that’s where it ends up hurting the borrower.  The whole thing is silly.

The banks aren’t lending to Main St. and aren’t going to anytime soon.  They have more important things to do these days, like gamble with stocks and derivatives on Wall St.

 

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