Q&A: The New SBA Is Ready to Help

After years of budget cuts, the U.S. Small Business Administration is finally getting a $730 million boost from the American Recovery and Reinvestment Act of 2009. The stimulus bill money, coupled with an additional $15 billion from the Treasury Department to buy up SBA-backed loans, are for some, an indication that the agency will play a pivotal role in economic recovery. Although the SBA doesn't issue loans directly, it facilitates small business lending through banks and other financial institutions by mitigating associated risks. Alberto Alvarado is the district director of the SBA's Los Angeles office, which oversees the country's highest-volume SBA loan portfolio, valued at approximately $1.3 billion. We asked him to talk about the stimulus bill and the new programs the SBA would offer to provide access to credit, unfreeze the markets and re-inspire lending.
What is the SBA's role in the recovery?
At the end of the day, we are the messengers of hope. We have to go out there and encourage the businesses. Many, many are discouraged. Many, many have closed down. But we see the [bill] as a clear ray of hope, and certainly the best ray of hope we've had in a long time.
Are the programs going to have a visible impact?
We believe so. Starting this fiscal year [October 1, 2008], we've had a significant, significant decline in lending. In 2007, we did on average 120 approvals a week; last year, 70 a week. Last month we had about 20 a week. But once investors start to buy loans and the markets start to move, we expect the weekly number to pick up.
What's holding up the SBA loan markets?
One of the drivers in increasing loan volume has been the ability of a bank to sell a loan in a secondary market and obtain a significant premium. Then the bank could go out with increased liquidity and make more loans. Now, there are $3 billion in loans stuck in that secondary market. For about a year, banks haven't been selling, investors haven't been buying and premiums are low.
How long will the additional money be able to fund these new programs?
The funding will continue to the end of the calendar year and into next year, but that's about as much money as there is to run those programs. We think these are good programs and they will certainly jumpstart things. Whether they will be needed beyond that period is not clear at this point.
Are you expecting additional help from the federal government?
We're not looking necessarily for new programs or features because we think these are significant. Obviously there will be refinements as we go down, but nobody's thinking of these programs not netting the results [because] these measures dramatically increase the SBA's ability to help small business owners.
What's the SBA's outlook?
In concert with other things that are happening, we feel very positive about [the future]. We've seen excitement in the last few weeks, and we expect significant increase in volume and an increase in interest in our programs by the lenders and businesses.