U.S. Offers Cash to Stimulate SBA Loan Market In a move that could unfreeze SBA loans, The Treasury Department and the Federal Reserve announced they will pump money into the asset-backed securities market. The government will lend up to $200 billion to investors who buy securities backed by packages of SBA-guaranteed small business loans, auto loans, student loans and credit cards. The secondary market for SBA loans had essentially frozen, forcing many banks to stop making the loans. Treasury said issuance of those consumer loans “declined precipitously in the third quarter of 2008 before essentially coming to a halt in October.” Treasury Secretary Henry Paulson said the new facility should enable a broad range of institutions to step up their lending. “We expect these efforts to help free up the capital both brokers and investors need to purchase new SBA loans,” said acting SBA Administrator Sandy Baruah. “As this cycle continues, we expect secondary market activity to begin to return to normal levels.” SBA said about $4 billion in securities backed by SBA-guaranteed loans are bought and sold in the secondary market each year, but that market has “essentially frozen.” The number of SBA loans made through its flagship 7(a) program dropped by 30% in fiscal 2008 from the previous year, and since September 15 lending has declined by more than 50%. “SBA lending has dropped so far, and so fast, that small businesses have few places to turn right now for financing,” said House Small Business Committee Chairwoman Nydia Velazquez, D-NY. “Restoring SBA as a source for lending is absolutely critical to jumpstarting the economy.”