Lending to small businesses could freeze this December, when the Small Business Administration expects to run out of economic-stimulus funds.

Those funds enabled the SBA to raise its guarantee on its main loan program to 90 percent.

That higher guarantee, combined with the temporary elimination of some loan fees for borrowers and lenders, has led to a 54 percent increase in the average weekly volume of 7(a) business loans since March 16, when the incentives went into effect.

About 1,000 lenders that had not made an SBA loan since last October, when credit markets crashed, returned to the program after the stimulus package was enacted.

Many of these lenders may not continue making SBA loans, however, if the agency doesn’t find a way to keep the higher loan guarantee and fee eliminations in place.

These stimulus-funded enhancements “made a significant difference in the incentives for both the lender and the borrower,” said Paul Merski, chief economist for the Independent Community Bankers of America.

If they go away, SBA lending would drop significantly, he said.

This decline would occur “at the worst possible time,” he said, just when small businesses look to take advantage of an improving economy.

“It’s not going to do small businesses much good if there’s business out there and they can’t get capital,” Merski said.

ICBA and SBA lenders are urging Congress to extend these stimulus provisions for another year.

Even with the gains since March, the SBA’s year-to-date lending numbers remain far below last year’s pace. Through August 28, the number of 7(a) loans were down 41 percent so far this year and 504 loans were down 33 percent.

“The bleeding maybe has stopped, but the patient still isn’t well,” said David Bartram, who heads the SBA division of Seacoast Commerce Bank in Chula Vista, California.

‘Lots of options’ considered

SBA Administrator Karen Mills said the SBA and the Obama administration are committed to making sure small businesses have access to capital. How that should be done is still being discussed, she said.

“We’re thinking about lots and lots of different options,” Mills said. “We’re not going to let our small businesses down, and we’re not going to let our bankers down.”

Congress could come to the rescue by passing legislation that extends the higher guarantee and lower fees on 7(a) loans, or the administration could use Troubled Asset Relief Program funding to enhance SBA lending.

Meanwhile, Mills said, the SBA is rebuilding its infrastructure for its loan programs by attracting more lenders and by adding staff dedicated to these programs.

SBA defends bridge loans

Mills also defended the agency’s America’s Recovery Capital loan program. This program, also created by the economic-stimulus bill, provides no-interest loans of up to $35,000 for small businesses that have been successful in the past but need help making payments on existing loans due to the economic downturn.

As of August 29, 1,813 of these ARC loans had been made by 563 lenders. “Hundreds and hundreds” more are in the pipeline, Mills said. All 10,000 loans funded by the stimulus bill will be made, she said.

Many small-business owners, however, haven’t been able to find a lender willing to make these loans, even though the loans are 100 percent guaranteed by the SBA.

Some lenders say the hassles involved in making the loans aren’t worth the small amount of money they would make from them.

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Kent Hoover is the Washington bureau chief for bizjournals.