President Bush's proposed fiscal 2004 budget keeps the reins tight on the SBA's workhorse 7(a) loan program but gives extra giddyap to the 504 Certified Development Loan Program. Those two programs, in addition to the Small Business Investment Company (SBIC) program, are the SBA's three big financial steeds. Approving 51,661 loans in fiscal 2002, the 7(a) program is the SBA's highest-profile offering. These loans are generally used for working capital and go to small businesses turned down initially by private lenders because they lacked a track record or collateral. Bush is asking Congress for $95 million to support a $9.3 billion 7(a) loan ceiling. That is below the $12.2 billion ceiling set by Congress in 2002, although that year's authorization level was expanded by one-time Supplemental Terrorist Activity Relief (STAR) loans.
As opposed to the 7(a) program, where loan demand bumps up against the ceiling every year, 504 Certified Development Company (CDC) loans don't normally approach their authorized ceiling, which will be $4.5 billion in fiscal 2004. The long-term, fixed-rate financing CDCs offer is used for major fixed assets, such as land and buildings. Those loans have been increasing, says Chris Crawford, executive director of the National Association of Development Companies. "Dollars lent are up 30 percent year-to-date in fiscal 2003 vs. fiscal 2002," he says. That trend is likely to continue into 2004 because the proposed budget reduces the fee the CDCs have to pay the SBA. As a result, fees paid by small-business borrowers to the CDCs will decrease in fiscal 2004.
Stephen Barlas is a freelance business reporter who covers the Washington beat for 15 magazines.