Good article in BusinessWeek about a “new” federal program (approved as part of last February’s stimulus package, but not yet active) designed to encourage small business lending.
The Small Business Administration will, for the first time, provide guarantees for 504 loans sold into the secondary market. It’s common practice for lending banks to bundle groups of loans together and sell them to investors; unfortunately, asset-backed securities haven’t been very popular recently, since the collapse of the mortgage-backed securities market. The SBA’s willingness to guarantee these bundles makes them more attractive to investors, therefore making it easier for banks to bundle and sell small business loans, which in turn makes the banks more willing to lend to small businesses. At least, that’s the theory; it remains to be seen how this will play out in practice.
The 504 loan program is one of many types of assistance provided by the Small Business Administration. It’s designed to help job creation by providing financial support for business expansion. Information about the program can be found here.
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