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Wednesday, December 10, 2008

Small Business Adminstration Loans Significantly Reduced

Loans from the Small Business Administration (SBA) Community Express loan program for women and minority small-business owners are being significantly reduced at the same time the list of eligible people has gotten much bigger. In fiscal 2008, the Community Express loan program accounted for about 1% of the total dollar amount that the SBA guaranteed loans and 9% of all SBA loans. Seventy percent of the loans went to minorities, and 47% went to women.

Community Express loans fall under the SBA's 7(a) program, and they previously were one of the easiest and fastest ways for eligible small-business owners to get government-guaranteed loans. For example, business owners seeking to borrow $5,000 to $25,000 don't have to put up collateral. Loans for as much as $250,000 carry an 85% government guarantee -- much better than the 50% guarantee for a standard SBA Express loan, which is a 7(a) loan for small businesses that are borrowing less than $350,000.

When the Community Express program began in 1999, Congress specified that the total number of these loans couldn't exceed 10% of all 7(a) loans. So unfortunately, with more people seeking Community Express loans as credit tightened throughout financial markets, the SBA told lenders they would have to reduce the number of Community Express loans they approved each month. According to the SBA, the Community Express loan program has high default rates. SBA has also begun requiring applicants to provide a business plan and says it is strictly enforcing the requirement that applicants attend technical and financial-assistance classes. (The Wall Street Journal, 12/10/08)

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