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New Way to 7(a)

With no more federal subsidy, entrepreneurs are uncertain about the future of small-business loans.

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This story appears in the February 2005 issue of Entrepreneur. Subscribe »

Entrepreneurs are not sure what to make of the bill signed by President Bush in December to eliminate the $79 million federal subsidy for the 's loan guarantee program-and with good reason. Before the ink was dry, the spin was flying. One side, aligned with the White House, called it a small-business-friendly legislative compromise that would save the SBA's 7(a) program by making it "self-sustaining." The other side saw it as an unnecessary tax on small-business borrowers.

They're both right to some degree. Congress raised the program cap to $16 billion from $12.5 billion, and restored the maximum SBA guarantee on 7(a) loans from $1 million to $1.5 million. But making the program self-sustaining ultimately means higher fees for borrowers and lenders, who will now subsidize the program in place of the federal , with the SBA in the role of facilitator.

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