U.S. Committee on Small Business & Entrepreneurship Chair Ben Cardin (D-MD) last week convened a hearing on the Biden administration’s Fiscal Year 2023 (FY2023) budget request for the SBA.
Specifically, the budget request proposes a $28 million increase in funding to the SBA’s entrepreneurial development programs from $290 million in FY2022 to $318 million. The SBA’s Office of Entrepreneurial Development funds Small Business Development Centers (SBDCs) and Women’s Business Centers (WBCs) that help small businesses start, grow, and compete in global markets by providing quality training, counseling, and access to resources.
Biden’s proposal also calls for an increase to the SBA’s lending authority for the 7(a) loan program from $30 billion to $35 billion overall and an increase in funding for the SBA’s 504 loan program, long-term, fixed rate financing of up to $5 million for major fixed assets, from $7.5 billion to $9 billion.
During her testimony, SBA Administrator Isabella Casillas Guzman testified before the committee to detail how the administration’s $1.06 billion request—a $26 million increase—would help the SBA support small businesses still struggling through the pandemic; expand entrepreneurial and capital opportunities; and accomplish its priorities.
Guzman praised the administration for “building bridges of equity and opportunity across America and, opening doors for more small businesses to grow with access to capital, networks, training, innovation, and government contracting.”
Claiming that the administration helped spark a historic resurgence in entrepreneurship, Guzman said that the President’s budget proposal “taps into the entrepreneurial spirit to position small businesses at the forefront of our nation’s rebuilding and as the foundation for America’s greatest economy yet.”
The SBA is hoping to spur entrepreneurial investment, which has been slow to rebound during and after the COVID pandemic. Small business loan approval percentages at big banks ($10m + in assets) rose slightly from 14.9% in March to 15.1% in April. Meanwhile, at small banks, approvals increased from 20.6% in March to 20.8% this past month, according to the Biz2Credit Small Business Lending Index™ for April 2022.
Among several categories of non-bank lenders, approval percentages also climbed. Institutional lenders approved 25.4% of funding requests in April, up one-tenth of a percent from 25.3% in March. Alternative lenders’ approval rates rose from 26.6% in March to 26.8% in March.
While approval rates for small business loans continue to take incremental steps, we are still nowhere near pre-pandemic highs. Approval percentages are unlikely to reach their pre-pandemic levels anytime soon. Not only are lenders stingy, but with the Federal Reserve raising interest rates last week, the cost of capital for small business borrowers will increase. This will have an impact on future borrowing decisions. Most small business loans come with variable rates, and in the foreseeable future, those rates are likely to rise.
This all sounds daunting. However, small business owners must consider not only their cost of capital, but also their opportunity costs, such as not taking advantage of an opportunity to renovate or expand an existing location that has the potential to increase revenue substantially.
Although near-zero percent interest rates that we had for a decade are unlikely to return again now, entrepreneurism in the economy is still vibrant. Small business lenders – whether they are making traditional small business loans, SBA 7(a) loans or providing alternative lending products – must keep pumping capital into the hands of entrepreneurs.