Small Business Administration Loans: Antidote to the Credit Crunch?

The Small Business Administration announced today that it is changing two aspects of its lending programs in an attempt to shore up flagging loans for small businesses. These changes are in line with what Senators John Kerry (chairman of the Senate Committee on Small Business and Entrepreneurship) and Chuck Schumer have been recommending.

The changes, according to the committee's press release, will consist of:

One of the changes being made by the SBA would give lenders the discretion to use an alternative variable interest rate to the Prime interest rate. Lenders will now be able to use the London Interbank Offered Rate (LIBOR). Additionally, the SBA will allow loans with various interest rates to be pooled for sale on the secondary market rather than allowing only loans with the same rate to be pooled. These various rate pools are also known as Weighted Average Coupon (WAC) pools.

Last week we learned that the number of SBA-backed loans have dramatically declined over the past year. And I also mentioned that Obama has campaigned on a number of changes to the SBA, including increasing funding and simplying the loan approval process.

For supporters of the SBA and businesses that benefit from its loan program, I would say that a chief concern is whether Obama's promised reforms will get swept under the rug. The bailouts related to the financial crisis and Detroit might take attention away. But we'll have to wait and see.