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Small Business Administration considers loan expansion

Joe Napsha
| Thursday, Oct. 22, 2009

Small business advocates in the region said Wednesday the government's proposal to raise the limits on federal loan guarantees should give businesses a chance to grow.

"It will give the small businesses the opportunity to get money" in a credit market that's very tight, said Raymond Vargo, director of the University of Pittsburgh's Business Development Center, which also has offices in Greene and Washington counties. Without government loan guarantees, tighter lending standards adopted by financial institutions have restricted business' access to financing, Vargo said.

President Obama yesterday called for increasing the limits on two popular Small Business Administration loan programs, the 7(a) and 504 loans, to $5 million from $2 million, and the loan program for manufacturers to $5.5 million from $4 million.

As much as 90 percent of the loan could be guaranteed by the agency for loans initiated before the end of the year, depending upon the program and the amount borrowed. That additional guarantee is funded by the American Recovery and Reinvestment Act, SBA spokeswoman Hayley Matz said. Funding under the stimulus package allowed the government to increase its guarantees from 75 percent to 80 percent of the loan value, Matz said.

The SBA in Western Pennsylvania said it guaranteed 401 loans in the year from October 2008 through Sept. 30, and 256 of those were made under the federal stimulus package, which took effect Feb. 13.

"These small businesses need the (loan) guarantees because the banks aren't willing to lend them money if they don't have perfect credit," said Linda Yuhanihak, accounting manager for the Fay-Penn Economic Development Council in Uniontown. The organization assisted four businesses in the past four months obtain financing through the SBA "to make the projects happen," Yuhanihak said.

By proposing to increase loan guarantees, the administration is recognizing that "in order to have an economic recovery, small businesses have to have access to capital so the economy can grow out of the recession," said James Kunkel, director of St. Vincent College's Small Business Development Center.

Many of the clients that work with the business development center would not obtain financing without the government guarantees, Kunkel said.

Even so, Marilyn Landis, a North Side business owner and past president of the National Small Business Association, said the administration's proposal falls short by failing to increase the amount of money available to fund the 90-percent loan guarantee. Funding for that aspect of the loan program may be exhausted this month, said Landis, owner of Basic Business Concepts Inc., a consulting firm.

"There's a lot more details that we must know about. We have to see if it is going to make a difference," said Landis, who attended the event when Obama made the announcement in Landover, Md.

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