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7(a) Deadly Sins

Loss of SBA loan money has fingers pointing--but who will solve the problem?

The SBA will be able to offer only $4.5 billion in 7(a) guaranteed loans this year--half the $9.7 billion it was expecting to offer.

The shortfall is due to a recalculation in the subsidy rate, a figure that determines how much in loans the SBA can guarantee. The White House was forced to double the subsidy rate from 0.88 to 1.76 percent in January due to cuts in 7(a) fees imposed by Congress. The move got the attention of Senate Small Business and Entrepreneurship Committee leaders. Sen. John F. Kerry (D-MA), chair of that committee, disputes congressional blame for the situation, noting President Bush signed the bill lowering 7(a) fees. Moreover, borrowers and lenders will pay $179 million in fees and loan repayments in 2003, enough for a $10 billion program. "The administration just didn't consider it a priority," says Kerry.

SBA administrator Hector Barreto believes he can cobble together a $7 billion 7(a) loan program using some leftover guarantee funds from fiscal 2002. He also believes some potential 7(a) borrowers can be steered into the 504 Certified Development Company program.

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The IRS returned about $18 billion to small businesses over a two-and-a-half-year period due to mistaken assessments, according to a General Accounting Office report. "Eighteen billion dollars is hardly chicken feed," says Sen. Kit Bond (R-MO). "It's real money related to errors that could be avoided in many cases."


Stephen Barlas is a freelance business reporter who covers the Washington beat for 15 magazines.

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This article was originally published in the June 2002 print edition of Entrepreneur with the headline: 7(a) Deadly Sins.

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