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January 28, 2023

Don’t Get That Excited About the Growth in SBA Loans

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

It’s time to dial down all the fuss about SBA loans.

First, there are the reports about increases in SBA loan dollar volume, thanks to the stimulus bill. For example, according to the SBA, over a period of about a year, average weekly loan dollar volumes increased more than 90 percent in the two most popular programs, 7(a) and 504, from the average before the passage of the stimulus bill. 7(a) loans can be used for such purposes as working capital and the purchase of equipment, while 504 provides long-term, fixed-rate financing for buying real estate and other fixed assets used for expansion or modernization.


But, a recent analysis by Scott Shane, professor of entrepreneurial studies at Case Western Reserve, shows this conclusion should be taken with a big pitcher of salt. According to Shane, the level of growth is only impressive when compared to the previous year’s poor results. That is, in 2009, the volume was about $180,000,000. So, the approximately $300,000,000 for the first 27 weeks of the 2010 fiscal year represents a big jump. But compared to, say, 2006 and 2007, it’s about the same.

Then, there’s the more important matter of just how many small businesses get SBA loans in the first place. The answer is: Not many. Take the 7(a) program, which comprises 90 percent of SBA loans. According to Shane, last year, less than one percent of small businesses with employees received one of these babies. If you look at non-employer businesses, which comprise the majority of all small companies, their share was between one tenth and one twentieth of one percent–about 50,000 small businesses out of 29.6 million.

Of course, 2009 was a lousy year. But, the data still suggests that all the attention being given to the SBA-loan program may not be warranted. That, in turn, has some pretty serious implications for government policy. Those businesses that got SBA loans undoubtedly were helped, possibly increasing their sales and, perhaps, their hiring. But, to reach more companies, the programs just aren’t enough. Another approach is needed to help the vast majority of businesses that don’t use these loans at all.

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

It’s time to dial down all the fuss about SBA loans.

First, there are the reports about increases in SBA loan dollar volume, thanks to the stimulus bill. For example, according to the SBA, over a period of about a year, average weekly loan dollar volumes increased more than 90 percent in the two most popular programs, 7(a) and 504, from the average before the passage of the stimulus bill. 7(a) loans can be used for such purposes as working capital and the purchase of equipment, while 504 provides long-term, fixed-rate financing for buying real estate and other fixed assets used for expansion or modernization.


But, a recent analysis by Scott Shane, professor of entrepreneurial studies at Case Western Reserve, shows this conclusion should be taken with a big pitcher of salt. According to Shane, the level of growth is only impressive when compared to the previous year’s poor results. That is, in 2009, the volume was about $180,000,000. So, the approximately $300,000,000 for the first 27 weeks of the 2010 fiscal year represents a big jump. But compared to, say, 2006 and 2007, it’s about the same.

Then, there’s the more important matter of just how many small businesses get SBA loans in the first place. The answer is: Not many. Take the 7(a) program, which comprises 90 percent of SBA loans. According to Shane, last year, less than one percent of small businesses with employees received one of these babies. If you look at non-employer businesses, which comprise the majority of all small companies, their share was between one tenth and one twentieth of one percent–about 50,000 small businesses out of 29.6 million.

Of course, 2009 was a lousy year. But, the data still suggests that all the attention being given to the SBA-loan program may not be warranted. That, in turn, has some pretty serious implications for government policy. Those businesses that got SBA loans undoubtedly were helped, possibly increasing their sales and, perhaps, their hiring. But, to reach more companies, the programs just aren’t enough. Another approach is needed to help the vast majority of businesses that don’t use these loans at all.

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