An "Anonymous Banker" asks why aren't the top banks using SBA-guaranteed loans, called 7A loans, to stimulate small business start-ups and expansions when the economy needs it the most? These are loans in which the SBA guarantees to a bank or lender that it will cover most of the loan should the borrower fail to pay it back. In a good environment, it's a safe loan for a bank. In this environment, it should be a godsend. Anon Banker writes:

"In 2007 the top nine S.B.A. lenders (BofA ranked #1 and JP Morgan Chase ranked #2) made a total of 49,234 S.B.A. 7A loans totaling over $3 billion. As of March 31, 2008, approvals for 7A loans are down by 18 percent over 2007. And the dollar volume fell 9.3 percent, the steepest decline in 7A lending since 1992.

In other words, just when the small-business owner needs the most help, the banks are withdrawing their support. Why?" - NY Times

The answer is that although these government-backed loans may be guaranteed against considerable risk, SBA loans have a smaller spread ($$) than that of conventional loans. You know — more risk, more return. Also, if an SBA-backed loan fails, the bank won't get their guaranteed money back if they didn't meet the underwriting criteria. It seems these big bankers, who do these sorts of SBA loans like clockwork and just about in their sleep,  are fearful that they might make a boo-boo with the SBA's paperwork and criteria.

Anonymous Banker hangs tough, and suggests:

"Instead of providing capital to banks that don't need it, have the Treasury provide the capital to the banks that agree to earmark those funds, or a significant portion of those funds, specifically for loans granted through the S.B.A. programs.

The government has been doing everything it can to improve the capital positions of the banks. It bailed out Fannie Mae and Freddie Mac, whose securities represented the majority of capital held on the banks' balance sheets. It reduced the federal funds rate to 1 percent. The banks will further improve their capital positions, over time, based on earnings from the spread between what they pay their depositors (1.25 percent on a typical money market accounts and zero percent on checking accounts) and what they charge their borrowers (credit card rates over 25 percent). The banks have enjoyed record earnings in the past years by behaving in such an irresponsible manner that our country's economic soundness is now at risk. It is time that they pay us back. And if that means earning a smaller spread on S.B.A. loans that will revitalize our country, then they will just have to learn to live with less profitability and income. It's what we've all had to learn to do because of them."