The FY 2010 U.S. Department of Defense (DoD) appropriations bill includes $125 million of funding to continue, through February 28, 2010, enhancements that were made last year to two of the Small Business Administration's (SBA) largest loan programs as part of the American Recovery and Reinvestment Act (ARRA). The SBA estimates the additional funding will support $4.5 billion in small business lending.

New loan approvals with the higher guarantees and reduced fees were expected to begin by December 28, 2009. Loan applications from borrowers who chose to be placed in the SBA's Recovery Loan Queue will be funded first, followed by new loan approvals. (When funds for the two programs were exhausted by November 23, the SBA created a Recovery Loan Queue in case more funding became available.)

The increased guarantee and reduced fees on SBA loans has helped put more than $16.5 billion in the hands of small business owners and has brought more than 1,200 lenders back to SBA loan programs, according to SBA Administrator Karen Mills. The extension of these programs through February, she says, is important to continuing recovery and will mean thousands more small business owners will have access to the credit they need.

The extension included in the DoD bill authorizes the higher guarantee levels through February 28, 2010. The fee relief is authorized until this additional funding is exhausted or the end of the fiscal year, whichever comes first. As was the case in November, the SBA will transition into a queue system as the funds start to wind down in order to ensure the maximum stimulative effect of the programs and disbursement of funds.

For non-ARRA 7(a) or 504 loans funded during the transition period, this extension does not provide a retroactive guarantee or waived fees. Loans that were funded under non-ARRA terms cannot be canceled and resubmitted to take advantage of the ARRA extension provisions. This extension does not affect other SBA ARRA programs, including the America's Recovery Capital loan program or the agency's microloans. ARRA funding still remains for both of those programs.

The Senate Committee on Small Business and Entrepreneurship has approved legislation - the Small Business Job Creation and Access to Capital Act of 2009 (S. 2869) - that would increase the small business loan limit to as high as $5.5 million and extend for a year the fee eliminations and increased guarantee which were set to expire under the Recovery Act (see above). A similar bill (H.R. 4302) is before the House Committee on Small Business.

"The loan limit increase could boost SBA lending by $5 billion in 2010 alone," says Committee Chair Senator Mary Landrieu (D-LA), while the refinancing component of the bill could help save 60,000 jobs. Specifically, the bill would:

• Increase the loan limit on 7(a) loans from $2 million to $5 million.
• Increase the loan limit on 504 loans from $1.5 million to $5.5 million.
• Increase the loan limit on micro­loans from $35,000 to $50,000 and increase the maximum loan made to a microloan intermediary from $3.5 million to $5 million.
• Allow the 504 loan program to refinance short-term commercial real estate debt into long-term, fixed rate loans.
• Extend the authorization to provide 90 percent guarantees on 7(a) loans and fee elimination for borrowers on 7(a) and 504 loans through December 31, 2010.
• Direct the SBA to create a website where small businesses can identify lenders in their communities.

The Recovery Act provided $375 million to increase the guarantee on small business loans and eliminate the fees charged to borrowers. However, that money is almost completely spent, and the SBA has been forced to create a waiting list for awarding the final dollars. Since the creation of this waiting list, the weekly SBA loan volume has plummeted far below its pre-Recovery Act volume. Before the Recovery Act, the average weekly loan volume for SBA loans was $114 million. Following implementation of the Recovery Act provisions, the weekly volume increased to $213 million. But in the first full week of lending following the establishment of this waiting list, only $71 million in loans was approved.

Bank of America has pledged to increase lending in 2010 to small- and medium-sized businesses by at least $5 billion more than in 2009. The bank, which is currently the second largest small business lender in the United States, made the announcement immediately following a December 14 White House meeting at which President Obama pressured the nation's largest recipients of bail-out funds to start reinvesting in the economy.

"We agree with the President that small and medium-sized businesses are the lifeblood of the U.S. economy," Bank of America former president and CEO Kenneth D. Lewis said. "Their ability to prosper and grow is key to job creation to help our nation recover from the economic slowdown."

During the first three quarters of 2009, Bank of America extended more than $12 billion in credit to small businesses (companies with revenue up to $20 million) and also helped 49,000 small business clients improve their cash flow through loan modifications. In addition, Bank of America originated more than $215 billion in commercial non-real estate loans to medium-sized companies during that period.

The San Diego City Council has approved a new program that will help small businesses get more city contracts. Under the unanimously approved Small Local Business Enterprise program, only small local businesses will be considered for projects valued at less than $500,000 (unless there are no reasonable bidders that qualify). In addition, bids made by small local businesses will be discounted by 2 percent when considered against bids from other businesses. For contracts between $500,000 and $1 million, bids will be artificially reduced by an amount equal to 5 percent of the lowest bid. The program will also give preference to contractors that subcontract with small local firms. The new program is set to start in July.