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Feeling the Pinch

A new proposal seeks to get the SBA's 7(a) loan program back on its feet. But what could it mean for you?

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This story appears in the May 2004 issue of Entrepreneur. Subscribe »

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.

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