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Capital Crunch

When Ron Baker, president of CCA Electronics Inc. in Atlanta, wanted to expand his export business in 1990, the Small Business Administration (SBA) came to the rescue. It offered Baker's bank a guarantee on the $400,000 loan it extended to CCA, thanks to a program called the Export Working Capital Program, or EWCP (then called the Export Revolving Line of Credit).

"Without the EWCP, we would have been out of business a long time ago," says Baker. "The EWCP is essential for small business."

But now it is the EWCP that needs to be rescued. Just as Clinton administration efforts to strengthen the program were beginning to show results, Congress passed legislation-signed by President Clinton-with a provision that lowers SBA guarantees on 7(a) loans (of which the EWCP loans are one type) from 90 percent to 80 or even 75 percent.

"Reducing the guarantee rate now might be seen as pulling the rug out from under lenders who have already begun marketing the program at a 90 percent [guarantee] rate," says Philip Lader, administrator of the SBA.

The Clinton revitalization efforts, begun in October 1994, increased the number of EWCP lenders from 62 to 150; the number of EWCP loans in fiscal 1995 surpassed 150, more than 50 percent higher than in fiscal 1994.

The 90 percent guarantee had been critical to attracting banks to the EWCP. "Many transactions now done by participating banks would be too costly and [risky] at 75 or 80 percent," says William C. Cummins, co-chairman of the Small Business Export Finance Committee for the Bankers' Association for Foreign Trade.

Not only will lowering the EWCP save the federal government very little money, since EWCPs make up less than 1 percent of 7(a) loans, but it will deprive the SBA of a focal point in its effort to encourage small businesses to dip their toes into foreign waters.

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This article was originally published in the January 1996 print edition of Entrepreneur with the headline: Capital Crunch.

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