Status Report: Small-Business Lending
The Wall Street Journal reports: Small-business loans are up at many of the nation's lenders, but business isn't exactly humming, and growing apprehension about commercial lending could leave a substantial number of firms without a source of capital.
Firms holding their expansion plans in check may have a good reason, says Bob Coleman, a small business banking analyst in La Canada, Calif. "We're still in a recession," he says. "We're not talking Armageddon here, but it will [likely] remain tough for businesses to get loans," says Coleman.
The root of the problem is a lack solid private backing for small-business loans. One example is the disparate markets for the two components of 504 loans, which business owners use to purchase real estate and equipment. Although the secondary market for 504 debentures (the 40% stake of each of these loans that is guaranteed by the government) is flowing relatively freely, there is no secondary market for 504 first mortgages (the 50% stake made by private lenders), Coleman says. In the American Recovery and Reinvestment Act (ARRA), the SBA was instructed to take steps that would establish a secondary market for these first mortgages, says Jonathan Swain, a SBA spokesman. "We are currently in the process of finalizing the regulations for that piece of the Recovery Act," he says.
Still, Coleman insists that the SBA is dragging its feet. Through the program, the Treasury would purchase mortgages if no other buyers step forward. Assurance of a buyer might drive banks to continue issuing 504 loans. Without that guarantee, banks could remain wary about issuing such loans, as many analysts expect the market for commercial loans to be the next shoe to drop, he says. Already, there are about $135 billion in defaulted commercial mortgages, a figure that has more than doubled since the beginning of the year, according to Real Capital Analytics, a firm that tracks commercial property sales.
View the full article on The Wall Street Journal: Status Report: Small-Business Lending
Posted by: Matthew Stone