Kiplinger; By: Jonathan Crawford

Smaller banks will be a growing source of small business loans. More will participate in government loan guarantee programs as initiatives from the Obama administration take effect and market conditions begin to improve.

The Small Business Administration (SBA) will add staff and other resources to streamline its loan operations and outreach to banks, trying to reverse a 50% slide in bank participation since 2001.

Getting more banks to participate in SBA's 7(a) and 504 loan programs will give small firms more access to needed capital while conventional small business loans and credit cards are hard to obtain.

The SBA wants to increase the participation of smaller lenders, credit unions and community bankers, in particular, in its loan programs, leveraging the existing relationships many of them have with local business owners. At least 30 lenders have teamed up with SBA since March. And more banks are making new loans for the first time in over a year.

Anthony Wilkinson, president and CEO of the National Association of Government Guaranteed Lenders, says beefing up SBA resources to improve service is likely to bring even more lenders to the table.

But Wilkinson doesn't expect a sea change overnight. Some lenders will continue to balk at teaming with SBA, put off by the agency's fees and caps on interest rates charged by lenders. Others complain about poor past working relationships with the government agency.

"You have to realize, the SBA has been under declining resources for the past eight years, so it's going to take them some time," Wilkinson says.

Sen. Mary Landrieu (D-LA), chairwoman of the Senate Committee on Small Business & Entrepreneurship, is also pushing to bolster SBA-lender relations. "While it is encouraging that about 40% of community banks in America participate with SBA, it's discouraging that 60% don't," she says. Landrieu would like to see all small business owners, whether they are in a rural area or an urban one, to be able to tap their local community bank or credit union for an SBA loan if a conventional one is unavailable.

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