The effects of the recent across-the-board reduction in federal expenditures as a result of sequestration, which took effect March 1, 2013, are expected to be pronounced in the private sector, even if companies are not dependent on federal contracts as a primary source of revenue. A prime example of the impact of sequestration on the private sector is the planned curtailment of the Small Business Administration (SBA) loan program by up to $540 million. Some experts fear the SBA loan program may run out of money by early fall, leaving borrowers planning on SBA direct loans or SBA guaranteed funding without this important capital source for acquisitions of equipment and real estate. It is therefore critical that businesses seeking SBA loan financing submit their applications now, before funding runs out, since significant lead time is required prior to funding.
Two types of funding will be affected: the traditional 7(a) loan program, the SBA’s main funding program for small businesses, and the 504 loan program, an important source of funding for real estate purchases. Because of the cutbacks caused by sequestration, governmental experts predict that approximately 1,100 small businesses will lose access to these loans. The unavailability of government-backed loans that have been credited with stimulating capital investment in recent years may contribute to continued sluggish growth in job creation. SBA loan activity in 2012 was robust, and strong demand for these loans has continued during the early part of 2013. The SBA is on pace to meet or exceed its loan targets for both of these programs, and due to sequestration, the targets may now need to be lowered.
Now is the time to decide if your business may need an SBA loan. If you do, we encourage you to submit your application before the SBA hits its targets for the year and refuses to take any more applications. If you need assistance in completing an SBA loan application or wish to discuss the future of the SBA loan program in the wake of sequestration, please contact Peter D Brosse, Chair of our Business Practice Group, at firstname.lastname@example.org (216-831-0042 ext 144), Scott M. Lewis, Administrative Partner, at email@example.com (ext. 124) or another attorney in our Business Practice Group.