SBA Makes Borrowing Easier

The Small Business Administrations (SBA) has implemented a makeover which will make lending to small businesses easier. This change, which took effect on August 1st, simplifies loan requirements, automates many of their underwriting processes, and expands the pool of non-bank lenders who can provide SBA Lending.

The SBA is saying that these changes are being done in response to traditional banks tightening up on lending to small businesses in response to the banking crises. Many businesses are struggling to get financing as we go through the current economic cycle.

Lending by non-bank lenders has become an issue in the industry because these lenders are not overseen by the federal banking regulators. Current legislation introduced in the Senate would direct the SBA to perform annual stress tests and add guidelines to the non-bank lender underwriting process.

Congress authorizes the Small Business Administration to guarantee up to $34B annually through its lending programs. Last year, lenders only lent $26B of that authorization.

It should be noted that the SBA doesn’t lend money. It only guarantees the performance of loans made by lenders on up to 85% of the loan value.

The SBA is also making other changes to many of its programs including disaster lending. It has almost doubled current loan limits and has deferred repayments for the first year of lending.

Let me leave you with this.

Does this horrify anyone else? How much easier do they have to make going into debt?

I realize why they’re doing this. They want to get the extra $7B they didn’t lend last year out of the street to help small business owners. Okay. Great. That’s all good.

But they’re talking about fixing a system that isn’t already broken. This will only add to the fraud and loan defaults already rampant in the system.

During the pandemic, I had a nice lady come into my office who’d been given a PPP Loan based on a business that didn’t exist. Stop. Take a moment and think about that. She went to her bank with the business plan she’d written saying that she might possibly have “X” in payroll once she got up and operating.

They gave her half a million dollars.

She then promptly broke the rules of her loan agreement and spent it on building out her rented space and going to Europe on several vacations. She’d come to me complaining that she was having problems getting the loan forgiven.

If you’ll remember, PPP Loan forgiveness was based on payroll and operating expenses. Since she only had a few operating expenses and no payroll whatsoever the bank was denying forgiveness, and somehow I was supposed to fix this SNAFU.

Since I don’t have an “S” on my chest and refuse to work for felons, I promptly and nicely asked her to get out of my building before I lost my lunch on the conference table. This isn’t the only instance like this that I’ve seen.

For the past 33 years I’ve seen the SBA guarantee lending based on business proposals that never actually got off the ground. How much easier do they need to make the process of going into debt?

Debt is bad. I want to say that loudly and clearly for all to understand. It’s extremely difficult to make any real money in business while you’re a slave to debt. The best day of any entrepreneur’s life is the day they don’t owe a cent to a soul.

At the very least, before going into debt, you need a strong plan on exactly how to get out of it.

Just because someone is willing to give you money doesn’t mean you should take it. But now the SBA is making it even easier to be a slave to debt. Pretty soon they’ll do million dollar business loans through ATM’s.

Be careful.

We’re all going to get through this. Let’s get through it together.

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