The Trouble With Treasury's Small Business Lending Rescue Plan

Today Treasury announced the details of a rescue plan to shore up the flagging small-business loan market. The details, which you can read here, explain what the administration will do with the $750 million in the stimulus package set aside for small businesses, but more significantly, it announces that Treasury is going to spend $15 billion buying securities made up of packaged SBA loans from the 7(a) and 504 programs.

There's a lot to swallow here, but my initial thoughts are this: unfreezing SBA loans is only going to make a marginal difference in the overall small business credit crunch, for one simple reason: SBA lending is only a small piece of the overall small-business lending environment.

According to the February Discover Small Business Watch survey, 90 percent of small-business owners have never applied for an SBA loan. Even if SBA loans became easier to get, 58 percent said they still wouldn't be interested in SBA loans.

Small business loans are going to rise or fall with the credit markets generally. I talked to Adeline Rem, regional vice president of Celtic Bank in Austin, Texas, an SBA-approved lender. She explained the problem as this: "Currently there is virtually no market for the guaranteed portions of these [SBA] loans and many banks are unwilling or unable, due to Fed directive, to commit large portions of their cash on hand to small business loans when it may be needed to shore up other areas of the bank’s portfolio." It's beyond the scope of the SBA to solve this problem. That means the Treasury's other rescue plan is going to be the deciding factor if we can get small businesses out of this credit crunch.