Government Stimulus Depleted for Small Businesses

The Small Businesses Administration has depleted the $375 billion stimulus package which encouraged banks to loan to small businesses. The plan tries to boost banks’ trust in small businesses by insuring the loaned money.

If the business defaults then the bank’s investment is insured by the government. Originally banks had to pay a premium for this plan, but additional funds were added to the program from President Obama’s economic Recovery Act Fund which waived these fees. Bank loans to small businesses have continued to drop and thus small businesses are looking for other sources of funding from private investors including equipment loans and merchant cash advances.

Despite the stimulus package, bank loans backed by the SBA still fell 36% this year as bank’s confidence in small businesses plummeted even more. The SBA claimed that the decline would have been much sharper if they hadn’t put forth the stimulus package. Karen Mills, the SBA Chief, predicted that the money would run out sometime in December and had warned banks two weeks ago that funding for the program was low.

The deadline for banks remains November 23rd as lenders try to push forward more applications, although the SBA is working with Congress to get an extension on the program which has stimulated growth amongst small businesses. Businesses which do not meet the funding deadline will have to resubmit applications to qualify for a non-Recovery Act loan.

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