Sba S 7 A Loan Guarantee Program

SBA's 7(a) Loan Guarantee Program: An Assessment of Its Role in the Financial Market

The Small Business Administration's (SBA) 7(a) program, initially established in 1953, provides loan guarantees to small businesses that cannot obtain credit in the conventional lending market. In fiscal year 2006, the program assisted more than 80,000 businesses with loan guarantees of nearly $14 billion. This testimony, based on a 2007 report, discusses (1) the 7(a) program's purpose and the performance measures SBA uses to assess the program's results; (2) evidence of any market constraints that may affect small businesses' access to credit in the conventional lending market; (3) the segments of the small business lending market that were served by 7(a) loans and the segments that were served by conventional loans; and (4) 7(a) program's credit subsidy costs and the factors that may cause uncertainty about these costs.

This is a print on demand edition of a hard to find publication. Many lenders have been reluctant to offer conventional loans -- that is, loans not guaranteed by the fed. gov¿t. -- to small bus. (SB). While the SBA loan guarantee programs are intended to help SB raise critical financing that they may have difficulty obtaining from other sources, the availability of such loans has also declined. This report reviews SBA¿s efforts to implement the 8 Amer. Recovery and Reinvest. Act (ARRA) admin. provisions. This report discusses the extent to which: (1) SBA has implemented the 8 ARRA admin. provisions; (2) ARRA admin. provisions and other actions are enhancing liquidity in the markets for SBA loans; and (3) SBA has implemented the ARC Loan Program and how its terms appeal to market participants.

The author, with the cooperation of the Brookings Institution and the Congressional Budget Office, analyzes the efficiency of the Small Business Administration. In the book's seven chapters Rhyne examines loan rate defaults, the subsidy issue, how banks respond to incentives to lend, and the philosophic question of the ultimate purpose of the SBA program. Coverage includes historical aspects, the life cycle of SBA loans, and various policy and financial issues of SBA programs. Rhyne is critical of the SBA loan guarantees; she presents recommendations for reforms and discusses the implications for other credit programs. . . . Original government data sources were used extensively in the research, making the work quite definitive as of the publishing date. Choice The Small Business Administration (SBA) loan guarantee program--one of the mainstays of small business financing--has been both sharply attacked as wasteful and staunchly defended as essential during recent debates over the Federal budget. This book clarifies the reasons for the often heated debate and offers new insights into whether the program does indeed subsidize the weak or perform a valuable service in bridging the small business credit gap. Rhyne argues persuasively that despite recent program improvements, the SBA allows a hefty subsidy to continue by tolerating frequent, costly defaults. She recommends that the program seek to become financially self-sustaining, thereby adopting a simple market-making function rather than a credit allocation role. The book with a brief history of the SBA program and its predecessor in the Reconstruction Finance Corporation. The author describes the program's political environment and demonstrates the central role of banks in the program. She then moves to a thorough analysis of the program's financial performance and assesses the impact of SBA loans on banks. Subsequent chapters examine the cost of the program to the SBA, the social goals of the program and how well it fulfills them, and the changes made in the program during the 1980s to improve its management efficiency. The final chapter explores policy changes that could improve the program's overall performance and offers recommendations for reform ranging from minor management improvements to major program restructuring. A landmark critique of a major governmental program and its impact on the business community, this book should be read by every banker, small business owner, and legislator with an interest in the fate of the SBA loan guarantee program, or in the government's role in credit allocation.