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SBA hits cap on most popular commercial loan program

The Small Business Administration (SBA)  hit the cap on its most popular commercial loan guarantee program on Thursday, potentially keeping hundreds of small-business owners on hold until October.

After heavy lending in July, the SBA’s 7(a) loan program reached the authorization ceiling of $18.75 billion, the agency reported. Borrowers will now have to wait until the next federal fiscal year begins for new loans to be approved, unless Congress raises the cap in the coming days.

The program backs loans as much as $5 million, but typically these are smaller-balance loans used to purchase property or for operations. The average loan amount last month was $365,000. The agency says it is still working with Congress to raise the cap, but time is rapidly running out before Congress takes its summer recess in August.

“It really is a wrench in the works,” said Giovanni Coratolo, vice president of small-business policy for the U.S. Chamber of Commerce. “Capital is an important part of what small businesses need to create jobs. Right now, you are kind of just cutting the legs right out from under them. You are taking small businesses and sidelining them.”

The SBA hit the cap after unprecedented lending in the program this summer, said David Hall, an SBA spokesman.

“Since the beginning of July alone, we’ve experienced over $3 billion in lending, more than five times the average volume, Hall said. “Just this week, our lending has been approximately $1.7 billion.”

A train wreck that could have been avoided

Charles Green, managing director of the Small Business Finance Institute, said Congress has known since April that the program would likely exceed its limit before the end of the fiscal year. The Senate Small Business and Entrepreneurship Committee passed an increase to the cap in April, as requested by the SBA, but the measure was not approved by the full Congress.

The program is funded through guarantee fees collected from lenders and does not require a budget appropriation. Green said Congress could act swiftly to raise the cap, but partisan politics and the impending break make that highly uncertain.

“It is a train wreck that could have been avoided,” Green said. “With the growth projections that we were following as early as April, this was obviously going to be a strong year. By May, I was calling it a record year.”

Dale Heyden, senior vice president SBA manager for Home Bank of California, said that some borrowers could lose their downpayments on property deals while waiting out the delay, or slow down their business or expansion plans. He also said  the shutdown could turn borrowers and some lenders off the program.  

“There is a lot of urban myths about the program that it takes forever to get an SBA loan,” Heyden said.  “We have been overcoming that slowly and surely over the last couple of years. We have got a good solid program that is really beneficial to the economy and the business owners of the United States. To have this hiccup, will definitely mean that the program will lose some credibility and people will think twice about this.”

Hall said that the SBA has been working with key members of the House and Senate small-business committees to push forward a proposal to raise the cap to $23.5 billion.

“While not yet finalized, it appears we are increasingly close to a resolution,” he said. If that fails, however, the SBA is still urging borrowers to apply for the program, Hall said. Applications will be placed in a queue and processed in order once the program restarts. 


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