This story appears in the
May 2004 issue of
Entrepreneur.
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When the SBA's 7(a) program ran out of funds in January
because Congress failed to pass an appropriation for fiscal 2004,
the SBA instituted emergency procedures, including lowering the
7(a) loan ceiling from $2 million to $750,000. (In fiscal 2003, 95
percent of 7(a) loans were for less than $750,000.) That cap
remained in place even after Congress passed the omnibus 2004
appropriations bill in late January.
Bush's 2005 budget proposal, which was released in February,
included a proposal the SBA says would put the 7(a) program on more
solid footing. The key component of that proposal, sponsored by
Rep. Don Manzullo (R-IL), chair of the House Small Business
Committee, reduces the 7(a) guarantee level from between 75 and 85
percent to 50 percent--the same level as in the SBA Express loan
program, a subcategory within 7(a). Express loans have been limited
to $250,000; nearly 50 percent of 7(a) loans are Express loans
already. The Manzullo bill would increase that figure to 100
percent and raise the Express cap to $2 million.
But several key members of Congress think the lower guarantee
rate shifts too much risk onto lenders and small businesses. Says
Rep. Nydia Velázquez (D-NY), top Democrat on the House Small
Business Committee, "SBA Express is an alternative lending
tool, but it is by no means a replacement for the 7(a)
program." Sen. Olympia Snowe (R-ME), chair of the Senate
Committee on Small Business & Entrepreneurship, also questioned
the proposal.
SBA officials contend the lower guarantee rate will allow the
SBA to expand 7(a) loans from the $9.5 billion available in fiscal
2004 to $12.5 billion in fiscal 2005, while reducing the
expenditure of federal funds.
Stephen Barlas is a freelance business reporter who covers
the Washington beat for 15 magazines.