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The SBA Stimulus Package

What is a stimulus package?

An Economic Stimulus package is an attempt by the government to boost economic growth and lead the economy out of a recession or economic slowdown. The two main ways for stimulating the economy are expansionary monetary policy and expansionary fiscal policy. Fiscal policy usually involves tax cuts or increased government spending, while a monetary policy involves lowering interest rates.

What is the 2009 stimulus package?

The American Recovery and Reinvestment Act of 2009 is a $787 billion economic stimulus package which was signed by President Obama on February 17, 2009. The Recovery Act had three immediate goals:

  • Create new jobs and save existing ones
  • Spur economic activity and invest in long-term growth
  • Foster unprecedented levels of accountability and transparency in government spending

To attain these goals, the government has taken step such as:

  • Providing $288 billion in tax cuts and benefits for working families and businesses
  • Increasing federal funds for education and health care as well as entitlement programs (such as extending unemployment benefits) by $224 billion
  • Making $275 billion available for federal contracts, grants and loans
  • Requiring recipients of Recovery funds to report quarterly on how they are using the money.

How does the 2009 stimulus package affect the SBA?

The 2009 stimulus package signed by President Obama includes funding to help support a number of programs at the U.S. Small Business Administration (primarily reducing fees on 7(a) guaranteed loans). The high-level breakdown of the SBA funding is as follows:

  • $375 million to lessen or remove loan fees and improve the SBA’s guaranteed share up to 90 percent of some loans.
  • $255 million to help small businesses specifically for meeting the debt payments.
  • $30 million to enlarge the SBA’s microloan program.
  • $15 million to grow the SBA’s surety bond guarantee policy to cover bigger contracts.

In November 2009, the original funding began to run low, and so in December, another $125M was given to the SBA to continue the program through February.

At the end of February 2010, another $40M was added to the SBA stimulus program to last through the end of April 2010 for business loans. This was the third extension to the program which ups the guarantee on certain small business loans to 90% and reduces and/or eliminates loan fees for small business borrowers.

As of May 2010, the SBA ran out of stimulus-related funding for higher guarantees and lower fees on its two key loan programs (7(a) and 504 loan programs) for the fifth time.

How does the 2009 stimulus package affect small businesses?

SBA Administrator Karen Mills said, “The increased guarantee and reduced fees on SBA loans helped put almost $22 billion into the hands of small business owners and brought more than 1,100 lenders back to SBA loan programs. As a result, average weekly loan approvals by SBA have climbed by 87 percent compared to the weekly average before passage of the Recovery Act.”

  • More lenders are willing to fund small businesses due to the higher SBA guarantee and so more financial aid is available.
  • The elimination of the SBA loan fees on the 7(a) and 504 loans has makes guarantee loans cheaper for borrowers allowing them to invest more money in their businesses.
  • Small businesses can take loans to make payments on existing loans.
  • The increase in the maximum amount that can be covered by an SBA surety bond (from $2M to $5M) allows small businesses to bid on contracts they might not have before.