SBA unable to thaw credit freeze (Dealscape)

The freezing up of existing lines of credit and the inability to get new credit is having a chilling effect. But according to The Wall Street Journal, small businesses who could traditionally turn to the Small Business Administration are finding that lending by the SBA has also dried up.

The SBA has long been promoted as a countercyclical stimulus -- when traditional credit is tightened, the agency loosens its spigot -- but because the SBA guarantees loans made by commercial banks instead of making them directly, its ability to counteract an economic downturn is limited. The WSJ notes that the big decline in SBA lending is fueling new criticism that the federal government isn't doing enough to help businesses when they are in most dire need of cash.

"SBA volume is significantly down, and one might argue that [it's happening] at a time when small business needs access to capital more than ever," says Chris Reilly, president of CIT Small Business Lending Corp. of Livingston, N.J., which ranks among the top SBA lenders nationwide.

SBA lenders are blaming the decline on a number of converging factors, including lower demand for loans overall, tightened lending standards and declining creditworthiness among applicants. - Donna Block