SBA Out of Money For Loan Breaks

From Washington.Bizjournals.com:

The Small Business Administration once again has run out of money for breaks that made its loans less risky for lenders and more affordable for borrowers.

The economic stimulus bill temporarily increased the government guarantee to 90 percent on the SBA’s flagship 7(a) loans and reduced or eliminated fees on 7(a) and 504 loans, which primarily are used for real estate. Congress has extended these enhancements four times, but the SBA announced Wednesday that it has exhausted all of the funds provided in the most recent extension.

As a result, the agency has reactivated its waiting list for borrowers who want to receive the higher guarantee and reduced fees when — and if — Congress provides funds for another extension. Pending legislation would extend these breaks through the end of the year, but it is not clear whether this bill will be enacted before Congress leaves for its weeklong Memorial Day break.

Until Congress acts, small businesses seeking SBA loans can either place their applications in a queue to wait for additional funding, or take a loan without the higher government guarantee or reduced fees.

The higher guarantee and reduced fees “engineered a significant turnaround in SBA lending and have been successful in helping jumpstart our economy for small businesses,” SBA Administrator Karen Mills said.

Municipal Bonds Are Worth A Look If You Can Handle The Risk

From USA Today.com:

Q: How do I go about adding municipal bonds to my portfolio?

A: Lending money to cities, states and local government agencies used to be a good move for investors in high tax brackets. That's made municipal bonds attractive investments for years.

By buying municipal bonds, investors looking for income not only received regular payments, they got excellent tax savings. The income paid by municipal bonds is typically exempt from federal taxes and often exempt from state taxes, if the investor lives in the state issuing the debt.

The whole muni bond market suffered a body slam during the credit crunch. Now, investors have become increasingly concerned about the ability of states and local governments to pay their debts.

This wasn't much of a concern before, since most local governments offered investors insurance to cover the possibility of default. But many bond insurers have been crippled by mortgages losses, so the value of the insurance has diminished.

The result? Yields on municipal bonds are attractive, but only if you can handle the higher risk. Gone are the days when you could blindly buy a municipal bond and assume even if things went badly you could get your money back.

To show you just how turned around the muni bond market has become, consider the Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX). The fund, which owns a basket of muni bonds maturing in seven years on average, is yielding about 3.4%, exempt from federal taxes.

That's an astounding yield if you consider the after-tax yield for a person in the 25% tax bracket is closer to 4.5%. It's even more impressive if you consider that the yield on 10-year Treasuries is just 3.0%.

Does this mean you should consider muni bonds? Clearly, if you understand the risks it's hard to argue with the yields. Just remember, though, that you can't just blindly buy single muni bonds anymore. If you're buying individual bonds you must take the time to understand the municipalities' demographics, tax trends and fiscal position.

The alternative is to buy a mutual fund that does the work for you. One place to start looking is USATODAY.com's Mutual Fund Screener. You'll find the funds under Fixed Income - Tax Exempt by state and by maturity, long, short or intermediate.