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IFA President & CEO Urges Congress to Increase SBA Loan Limits

WASHINGTON, Oct. 14, 2009—The International Franchise Association today urged Congress to make crucial changes to the Small Business Administration loan programs to help create as many as 650,000 new jobs.

“There is significant demand for more lending in the small business community,” said IFA President & CEO Matthew Shay during testimony today before the House Small Business Committee. “Making SBA loan programs work better for entrepreneurs seeking capital to open, acquire or expand a business will allow the economy to recover faster and provide the necessary bridge to a functioning commercial lending market once the recovery is complete.”

Shay explained that normally businesses could find financing from a number of sources, making the SBA loan program a lender of last resort for those who have trouble finding credit from traditional sources. However, during the current recession, commercial lenders have curbed their lending making the SBA an important lending source for all businesses. He said however, that many are not participating in SBA lending programs because either they lack expertise or they find the SBA’s requirements too burdensome.

"Increasing the maximum Small Business Administration loan limits from $2 million to $5 million would make more credit available to franchise business owners who own between two and five units,” Shay said. “Larger loan limits will enable some of these franchise small business owners to expand into new markets and help the U.S. create between 450,000 to 650,000 new jobs within the next 12 to 18 months.”

In addition to increasing the loan limits, Shay urged the Committee to look at new ways to stimulate small business lending so that funds are available specifically for business start-up and expansion, including:

• Re-institute the borrower fees on all 7(a) loans with amortizations over 15 years while eliminating or reducing lender fees on all 7(a) loans with amortizations under 15 years or alternatively on true start-ups with all amortizations.

• Make the 90 percent guarantee permanent for all loans with amortizations under 15 years, and adding a 100 percent guarantee for first two years of a franchise start-up. For loans with amortizations over 15 years, restore the 75 percent guarantee.

• Improve SBA audit standards. Shay said that if the prevailing perception among lenders becomes a lack of faith in the SBA guarantee, then small business lending will decline further and entrepreneurs will face a much greater challenge to be the engine of economic recovery.

Franchised businesses play an important role in the economic health of the U.S. economy, Shay said, and they are poised to help lead the economy on the path to recovery.  An IFA Educational Foundation report shows that the franchise industry consistently outperforms the non-franchised business sector, creating more jobs and economic activity in local communities across the country. Released in February 2008, Volume 2 of the Economic Impact of Franchised Businesses, documents that franchising grew at a faster pace than many other sectors of the economy from 2001 to 2005, expanding by more than 18 percent. During this time, franchise business output increased 40 percent compared to 26 percent for all businesses.

The findings of a 2009 study, Small Business Lending Matrix and Analysis, prepared by FRANdata for the IFA Educational Foundation, demonstrate that meaningful economic recovery and job creation can start with small business lending. In fact, the study determined that for every $1 million in new small business lending, the franchise business sector would create 34.1 sustainable jobs and generate $3.6 million in economic output.

Shay added that the stimulus bill passed earlier this year made some changes to the SBA program, such as temporarily increasing the loan guarantee and suspending loan fees for borrowers.

“These were crucial first steps and we urge Congress to ensure these temporary provisions are available through 2010,” Shay said. “Taking additional steps to increase access to capital for franchise businesses will create jobs and lead us to a faster recovery.”

Click here to view Matthew Shay's testimony.

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About the International Franchise Association
The International Franchise Association, the world’s oldest and largest organization representing franchising, is the preeminent voice and acknowledged leader for the industry worldwide. Approaching a half-century of service with a growing membership of nearly 1,300 franchise systems, 10,000-plus franchisees and more than 500 firms that supply goods and services to the industry, IFA protects, enhances and promotes franchising by advancing the values of integrity, respect, trust, commitment to excellence, honesty and diversity. For more information, visit the IFA Web site at www.franchise.org.

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