Restaurant Owners Most Frequent Users Of SBA Loans

If you’re a business owner with financing through the U.S. Small Business Administration’s largest loan-guarantee program, odds are you own a restaurant with five to 19 employees, and obtained the money through a non-bank lender.

In 1997, $9.5 billion in SBA loans were approved. The cost to taxpayers--$183 million--is a fraction of the loan volume because the government doesn’t directly make the loans. It merely guarantees them and pay, eventually, for loans gone bad.

Size Factor

Because the SBA guaranteed loan program is driven by demand rather than geographic allocation, it tends to benefit most the midsized small business.

(Large companies have other sources of revenue and loans. And small companies find it easier to borrow on credit cards rather than go through the hoops of an SBA loan application.)

In California, for example, companies with five to 49 employees get a greater percentage of SBA loans than their share of the total business population.

Lender’s Role

Another way that demand shapes the SBA loan program is manifested by the lenders who agree to participate. Many of the most active ones aren’t banks. (The Money Store and AT&T Small Business Lending Corp are two very active lenders.)

Many big banks stepped up their SBA lending after the SBA’s Office of Advocacy in 1996 pointed out their dismal record of small loans to businesses, according to SBA Chief Counsel Jere Glover.

(And some banks do SBA loans to have something to point to when they ask regulators to approve their mergers.)