Small Business Loan Failure Nears 12%

The latest analysis of SBA-backed loans has found that the failure rate has drastically increased. According the Coleman Report, which provides small business data and news, the number is nearly 12%

The report indicates a sharp increase in the failure rate of loans from the Small Business Administration in the last year. The findings show the 2008 rate was 11.9% in the fiscal year that ended on Sept 30. The previous year’s failure rate was 8.4%. And even a bigger eye-opener–the 2004 SBA loan failure rate was just 2.4%.

Though lenders are oftentimes criticizes right now for not getting the capital into business owners’ hands, this report clearly shows that it’s hard to justify an increase in lending with a failure rate at nearly 12%. Though this is an independent report, the SBA also did its own calculations.

The SBA calculated defaults on the number of loans made in the 2008 calendar year and indicates that number is around 10% (not much better than the Coleman Report’s 11.9%).

Everyone will need to find a middle ground between easy credit and being too strict in order to spark the economy.

“We all want to be good stewards of tax payers’ dollars,” the reports’ editor and publisher, Robert Coleman said. “Because 50% of the GDP is driven by small businesses, we need to focus on the flip argument: There’s an 88% success rate. Just face that we will have losses right now, and that those losses have to be at the government level so that we can protect what we have.”

Source: CNN Money