Credit Crunch Staggers SBA Loan Programs A leading industry watcher reports the secondary market for SBA-backed loans has “frozen,” making those loans harder to get. The Coleman Report, a publication for lenders, finds that the market was in a “meltdown” even before the worst stock-market turmoil struck in October. “In the absence of a secondary market for these loans, only the strongest applicants will receive them,” the National Small Business Association warned in its newsletter. It said smaller community banks, especially, look to sell their SBA loan portfolios to manage risk. “Although the explanations for this secondary stasis are rather esoteric, the result is easily understood: banks are going to be even more disinclined to make SBA loans.” SBA reported both the number and value of its guaranteed loans dropped sharply in the fiscal year that ended Sept. 30. The volume of loans fell 30% from the year before, while the dollar value shrank 11%. The agency blamed the decline on economic conditions. SBA said it is working to improve the liquidity of its loans on the secondary market. In addition, it accelerated the launch of Small Rural Lender Advantage, a program that targets smaller financial institutions, such as community banks, and institutions with low SBA volume. Senate Small Business Committee Chairman John Kerry, D-MA, urged the administration to authorize disaster loans to serve as bridge loans until the financial rescue package takes effect. A similar approach was used after the 9/11 terrorist attacks. “The Administration should take immediate action to jumpstart small business lending,” Kerry said in a statement. “Waiting for a larger bailout of banks isn’t an option for many firms in desperate need of capital.” In a Nov. 3 report, the Federal Reserve reported that banks continued to tighten lending standards during the quarter ending in September because of “a less favorable or more uncertain economic outlook and reduced tolerance for risk.” At its Oct. 28 meeting, when it cut its benchmark interest rate to 1%, the Fed’s Open Market Committee noted: “The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures. Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for U.S. exports. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.”