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Funding restored for SBA 7(a) loan program

The Small Business Administration’s (SBA) most popular commercial loan guarantee program is back in business after Congress approved and President Obama signed a measure raising the cap on how much money can be loaned through the program.

As he ended his visit to Africa Tuesday, Obama signed a bill that raises the authorization ceiling to $23.5 billion for the 7(a) program. Last week, the SBA suspended the program after it hit its cap of $18.75 billion for fiscal-year 2015, following unprecedented lending in July.

The U.S. House of Representatives voted to increase the ceiling late Monday, and the Senate approved the same measure last week.

If the Congress had not acted, small-business owners with pending applications would have had to wait until fiscal-year 2016, which begins in October, to learn whether their loans would be funded. As of Monday, there were more than 1,100 loans pending totaling about $717 million, the SBA said.

The SBA will resume guaranteeing 7(a) loans Tuesday afternoon, according to David J. Hall, a spokesman for the agency.

"Requests in the existing queue will be funded first, followed by new loan guarantee requests, which will be processed as usual," Hall said.

The program, which is funded by guarantee fees, backs loans up to $5 million. Typically these are smaller-balance loans used to purchase real estate or fund operations.

SBA asked for a higher cap in April 

Many business organizations, including the U.S. Chamber of Commerce, have been lobbying leaders to raise the ceiling. The SBA first urged Congress to raise the cap in April, and the Senate Small Business Committee approved an increase later that month.

Charles Green, managing director of the Small Business Finance Institute, was critical of the Senate for not acting soon after the committee vote, a move that would have given the House more time to take up the increase, and possibly avoided suspension of the program.

Although the business community is pleased with the legislation signed Tuesday, Green said, “it bears noting that Congress again stumbled on something that should have been routine, non-controversial and promptly attended to, when it was raised to their attention much earlier in the year." 

Not all trade groups see the program as essential to small business owners.

Bill Dunkelberg, chief economist for the National Federation of Independent Business, said the 7(a) program “funds weaker applicants that can't  pass muster at commercial banks.”

“The last Federal Reserve study of small businesses put the total size of all government-lending programs at a small, single-digit percent of total borrowing by small business,” he said last week in an e-mail to Scotsman Guide News.

“Banks still have lots of money to lend. Our data indicated that a historically high percentage of owners have no interest in borrowing, as their view of the economy and politics is not very bright.”

Lisa Lerner, an SBA consultant to lenders, noted, however, that Nike and Apple, among several other major U.S. companies, got their start with SBA loans.

Banks do assume some risk in the loan, Lerner said, and must follow the SBA guidelines or risk losing the guarantee. 

"When done properly, it does offer a small-business owner, either a startup or another business in a particular situation, an opportunity that might not otherwise be there," Lerner said.


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