In the second, the government decides it won't get any more collateral or money from the borrower. Years can elapse between the time that the borrower stops paying and the government writes off the loan.
In 2008, for example, the government concluded it wouldn't be able to recover $1.3 billion in defaulted bank loans it had guaranteed. Many loans were part of a backlog, according to SBA officials. But an AP analysis found that the time between loan approvals and loan defaults is narrowing.
According to the analysis:
- More than $235 million in restaurant loans have been charged off since 2007. The 2,586 restaurant charge-offs make up the largest number of defaulted loans, according to the SBA. More than 150 loans made to Quizno's franchises — worth nearly $15.5 million — have been written off since 2007.
- The Gulf Coast fishing industry, battered by two major hurricanes in 2005, has been hit especially hard. Half of the 10 cities with the highest industry-specific write-offs are in Biloxi, Miss.; New Orleans; Ocean Springs, Miss.; Lafayette, La.; and Abbeville, La. All told, the shellfish fishing industry had 45 loans charged off, at a total cost of $19.5 million.
- The banks making the loans have also been hit hard by the recession. Bank of America, which has received $52.5 billion in government aid, has had nearly 7,000 loans worth $238 million charged off since 2007.
More than 660 loans worth $174 million have been charged off by CIT Group, a major commercial lender forced to turn to bondholders in an effort to try to avoid bankruptcy protection after the government refused to save the company.
JPMorgan Chase, which repaid $25 billion in taxpayer loans last month, has written off nearly 2,300 loans worth $117 million.
"I have never seen it as rough as it is right now," said Scott Hauge, president of Small Business California, a business advocacy group.
Small businesses account for half of all private-sector workers and have created roughly half of the nation's jobs over the past decade. They received some help from the $787 billion federal stimulus package in February, including higher microlending amounts and federal loan guarantees.
Congress also authorized the U.S. Treasury to purchase $15 billion in pooled loans to encourage lenders to provide money to small companies. The SBA recently announced it will guarantee short-term bank loans to help small businesses pay off existing bills.
The White House has floated a proposal to take money from a $700 billion bailout of the financial system and provide small companies with working capital, allowing them to add inventory and employees. If it happens, the White House said, help might arrive by fall.
That's too late for thousands of defunct companies with shuttered windows, disconnected phones and broken dreams. Diego Garcia's soccer supply store in the modest Northern California city of Richmond has shrunk to one small location after Garcia was forced to close his two larger stores last year.
Garcia started the business after launching a youth program and soccer league in gang-ridden Richmond. He had turned away from his own gang lifestyle after being shot in the chest at age 18. Garcia expanded fast, never imagining how quickly his booming business would decline.
When he couldn't pay up, his bank wrote off nearly all of his $45,000 loan.
He lost rental property to foreclosure at the same time.
"It's too much of a loss," he said. "We had to get loans to get bigger. Then everything went the opposite way." Eric Zarnikow, SBA's associate administrator for capital access, said the bad numbers probably will continue to rise as the agency receives charged-off loans in the future from defaults occurring now.
Sakelarios, a breast cancer survivor without health insurance, tries to stay optimistic. "Anytime anyone asks me how it's going, I say the same thing. It's going really good."