The U.S. Small Business Administration (SBA) is rolling out changes to its small business loan guarantee program after the announcement on St. Patrick's Day by President Obama. Among changes are an increase in the guarantee to as much as 90%, elimination of the guarantee fee and efforts to improve the secondary market for SBA loans. These changes are intended to open up the market.

SBA loan volume is about half of what it was a year ago. This is seen as an indication that small businesses that are in trouble are unable to get the loans they need. In targeting relief to this group, a problem of the new loan program is that it may exclude any businesses that already have an SBA guarantee loan. But, a seemingly unrecognized problem is that SBA loans are down, in part, because loan demand is down, not because loan supply is down.

At the Nebraska Business Development Center (NBDC) we help Nebraska businesses get the capital they need to start or expand their businesses. The numbers for 2007 and 2008 tell and interesting tale.

In 2007 NBDC worked 403 loan packages and, of these, 269 were approved. In 2008 NBDC worked 303 loan packages and 174 were approved. So, while the number of approved packages dropped by 35%, indicating more difficulty in placing these businesses with banks, the number sought dropped by 25%, indicating that far fewer people found opportunity to start or expand a business.

Even more telling is the dollar value of loans sought and approved. In 2007 the loans NBDC worked totaled a request level of $323,225,623. The value of the loans successfully placed with a bank was $41,225,623. In 2008 NBDC worked loans with a total request level of $50,506,847. The value of successfully placed loans with banks in 2008 was $30,465,341. So, while the dollar value of loans placed in 2008 was 26% lower than in the previous year, NBDC was able to place only 13% of the dollar value of loans in 2007 but was able to place 60% of the dollar value of loans in 2008. This is not a story of dried up loan availability so much as it is a story of dried up loan demand.

The new SBA loan programs are important for struggling small businesses. However, no matter what the loan program rules, loan levels will not regain their previous velocity until small business owners and prospective small business owners see opportunity.