How Common are Small Business Administration (SBA) Loans?

Small Business Administration (SBA) guaranteed loans get a lot of attention in Washington. President Obama, for instance, believes that “the SBA should be provided additional resources to assist small businesses in acquiring capital necessary to start, continue, or expand operations”, the Congressional Research Service reports.

Many in Congress agree. Over the past several years, our legislators have passed several bills to expand SBA funding and to boost the size of the agency’s loan guarantee program, the Congressional Research Service explains.

All this attention might suggest that SBA loans are a major source of small business finance. But the data show that SBA-guaranteed loans make up a small portion of the value of small business lending, and that an even smaller fraction of U.S. businesses receive SBA loans.

The SBA’s primary loan program - the 7(a) program - is designed to help businesses that might not otherwise receive outside credit obtain loans by guaranteeing a part of the funding provided by financial institutions.

The 7(a) helps only about one percent of American businesses obtain loans. In its 2013 Congressional Budget Justification, the SBA says that it had a portfolio of 7(a) loan guarantees to “271,000 small businesses at the end of Fiscal Year 2011.” The agency’s Office of Advocacy reports (PDF) that 27.5 million US businesses were operation in 2009, the latest year for data are available. Therefore, roughly 1 percent of U.S. small businesses have outstanding 7(a) loans.

The program’s share of bank loans is of similar magnitude. Comparison of the number of 7(a) loans outstanding in 2011 with Federal Deposit Insurance Corporation (FDIC) estimates of the number of commercial and industrial loans of less than $1 million (a common proxy for small business loans) outstanding in September 2011 shows that the number of 7(a) loans was approximately 1.4 percent of the number of small business bank loans.

The fraction of U.S. businesses that have any type of SBA-guaranteed loan is very small. According to the 2007 Survey of Business Owners (SBO), conducted by the U.S. Census Bureau, only 0.3 percent of U.S. businesses, and only 0.9 percent of businesses with employees, used a “government-guaranteed business loan to finance expansion.” Because SBA-guaranteed business loans are a subset of all government-guaranteed business loans, the fraction of businesses that used an SBA-guaranteed business loan to finance expansion cannot exceed this share. By comparison, 9.0 percent of U.S. businesses and 34.2 percent of businesses with employees used a bank loan to finance expansion.

Similar numbers can be seen for start-up funding. The SBO reveals that 0.7 percent of all businesses and 1.5 percent of businesses with employees used a “government-guaranteed loan to start or acquire a business.” By comparison, 10.7 percent of all businesses and 14.5 percent of businesses with employees used a bank loan to start or acquire a business.

SBA-guaranteed loans make up a larger fraction of the value of loan portfolios than their share of loans or borrowers because SBA loans tend to be relatively large. In 2012, the “total unpaid principal balance” of the SBA’s 7(a) loan guarantee program was $59.4 billion, according to a May 2013 Congressional Research Service report (PDF). This figure amounts to 5.2 percent of the SBA’s estimate of $1.1 trillion in outstanding bank and finance company capital provided to small businesses. However, this fraction is up significantly from the 3.6 percent it composed in 2007, SBA figures reveal.

A May 2013 Congressional Research Report suggests that the value of all outstanding SBA loans make up a larger fraction of small business lending. That report indicates that the value of the SBA’s portfolio of outstanding loans was $99 billion in fiscal year 2011, amounting to 9 percent of outstanding bank and finance company capital provided to small companies. However, the SBA’s 2011 fiscal year report hints that this number includes “defaulted guarantied business loans receivable, direct disaster loans, and direct business loans receivable.” Therefore, this figure may overstate the value of the SBA’s loan portfolio.

All-in-all, SBA-guaranteed loans make up a small portion of small business finance. Their outsize attention in Washington probably reflects the fact that they are the part of small business finance system that policy makers can influence most directly.

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