Why Lowering Loan Rates Won't Boost SBA Loans
Today’s article on Heraldnet.com says: "Congress is puzzling over how to improve lending rates to small businesses in light of a lackluster performance from loan programs through the Small Business Administration." The crux of the small business credit crunch is not about interest rates or lack of investors willing to purchase loans….although both play a part….its about credit quality. There is a key piece of the pie that no one is talking about. That is: investors want to buy perfoming or “seasoned” loans that have been in good standing for a significant period. A “seasoned loan” is one where the borrower has made payments on time since the loan was originated, the collateral value hasn’t deteriorated and there are generally no issues or problems. That means that any SBA loan made today would generally require 12 months of good performance before an investor would be willing to purchase it at the current premium. However, if during that “seasoning period” the borrower goes i