The Small Business Administration (SBA) loans works towards helping small businesses grow and thrive. The SBA does not lend money to small business owners directly; it creates relationships between responsible businesses and trusted lenders. It then lays down the necessary structures and guidelines for both the loan vendors and the business owners to make sure they pay back the loans, while at the same time ensuring a win-win situation. Some of the laid down guidelines and incentives include but are not limited to:

The lenders are assured that the borrowers meet a certain criteria that reduce the chances of default. The business owners on the other hand gain benefits such as little or no collateral, small-down payments as well as competitive rates and fees.

However, despite all these structures and guidelines in play, SBA loan defaults still occur. Some of the economic trends associated with 1 in 6 of SBA loan defaults in the past ten years, between 2006 and 2015 are:

The Great Depression

As a result of the Great Depression, individuals lost their source of livelihoods, homes and standards of living. This means that people could no longer afford the houses they lived in and potential buyers were no longer in a position to invest in real estate. The trickle-down effect led to a strain in the whole real estate sector leading to one of the highest SBA loan forgiveness at the time.

According to research, The Mortgage and non-mortgage loan brokers, residential property managers, the offices of the real estate brokers and multi-family housing construction businesses had the first, second, the highest SBA loan default rate within a period of ten years. This led to the National Association of realtors, which represents professionals in commercial and housing real estate to lose a 26% membership from the peak experienced in 2006. This is on top of the post-housing downturn low faced in 2012.

Online Shopping and services

The consumer’s trend moving towards online shopping led to a 42.7% SBA default rate from 2006 to 2015 for videotape and disk rental businesses. Travel agencies and book stores were also not spared as they experienced a 39.4% and 31.4% respectively.

Brick and Mortar stores struggle

As consumers turned away from visiting some stores, over 221 businesses were affected with department stores, women’s and men’s clothing stores and shoes stores suffering a 40.6%,33.6%,32.9% and 31.6% SBA default rates respectively.

Health Providers positive trends

On the contrary despite, the high rates of SBA default rates in most businesses between the year 2006 and 2015, health care providers were said to be doing great in their businesses. Loans to dentists, optometrists, physician offices, pharmacies and healthcare providers had recorded default rates as low as 5.2%, 4.9%, 5.2%, 5.3% and 8.8% respectively. Health care providers can therefore be said to be the businesses that have received minimal SBA loan forgiveness within the ten year period.

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