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Uncertainty among banks and entrepreneurs has reduced demand for small business loans—particularly for new franchises and small businesses—after five years of record loan volume. Read more on this topic in this article from Blue MauMau.

The Small Business Administration announced Thursday that the number of government-backed loans to small businesses sank by 30 percent. Mr. Sandy Baruah, the acting administrator to the administration since June of this year,  said the reduced demand for SBA loans is the result of a "perfect storm" of tightening credit by lenders, declining creditworthiness and a reduction in borrowers because they are uncertain about the future.

Loans that are typically given to new franchise and small business owners, called the 7(a) guaranteed loan program,  plummeted from their historical highs of 99,606 in FY 2007 to 69,434 for the SBA's FY2008. However, the loan dollar amount only fell 11 percent, from $14.3 billion in FY2007 to $12.7 billion in FY 2008.

Loan volume had set records in each of the five years before 2008.

The Small Business Administration's fiscal year is October through the end of September the following year. October's shrinkage of loan credit is not included in the FY 2008 figures.

By providing bigger loans, the administration said they were "expanding more sustainable and successful small businesses." But it did not elaborate why larger loans meant a more successful business.

Mr. Baruah elaborated on how the president's recently signed $700 billion-plus bail out package for the country's financial sector will help raise SBA loan volumes in the future "by giving the government new tools to unclog the arteries of our financial system, allowing credit and capital to flow once again.”

“I am very hopeful,” said Baruah. “I am hopeful because I have seen this great nation tackle and overcome all sorts of challenges in just the last few years."

The agency announced that besides waiting for the bailout to kick-in, it is attempting to raise the accessibility of smaller community banks and institutions to SBA loans. It is also cutting its lending partners some credit slack by deferring SBA guaranteed loan payments by up to three months.

This article has been reposted from Blue MauMau. View the article on Blue MauMau's small business and franchise news website here.