Well let me give you the rundown of some of the points they touched on in the article. First off if you remember the post I wrote about the SBA on micro loans and the later one on free help with your business plans. Mostly that is what the SBA does according to the article. They hire retired professionals who volunteer their time and services to entrepreneurs starting out in the business world and offer loans that are guaranteed up to a certain percentage. Now where everything gets fuzzy is how they are suppose to be a substitute for new or start up businesses who can not receive traditional financing from a bank (Due to credit or lack of experience), but they got rid of the LowDoc loan that most start up businesses applied for and were approved. Main reason for the termination of the loan is because they say they were losing too much money with the program (Not profiting maybe?). The lowdoc loan was pretty much a fast application (Low Documents) to get money to fund your business, which was backed by the SBA up to a certain percent to make the bank feel safer with the transaction. Once they terminated the loan package they replaced it with the SBA Express loan, which was suppose to be the new alternative to financing small businesses.
Only thing wrong with that picture is that the requirements for the loan were stricter and really worked for companies that could demonstrate cash flow, but lacked in collateral department (Not for riskier borrowers). In order to show proof they expect two years of business operation and if your business is a start-up…how can you demonstrate cash flow and most likely it is your first year in business…maybe even your first month! The article stated that after research how most of the Express loans were going out to businesses that should already have sufficient cash flow. I know I experienced similar problems when I applied for a loan while I was still in college and had no real credit, plus no longstanding business. Everywhere I turned they pointed me in the direction of the SBA offices for financing…so I went and was declined, Mostly because my lack of a sustainable business (Plus no credit, but that is what they are suppose to be there for!) that demonstrated a path to success. I was less than a few months in at the time.