Small Business: SBA proposes changes in 7(a) loan program

Sam Jones is the Region VII SBA Administrator.

With federal budget money being tight in this recovering economy, the SBA may have found a way to provide more money for thousands more small business loans in fiscal year 2004. More money loaned to small businesses always means more jobs created or retained, so this is a consumer-friendly proposal.

SBA announced the new legislative proposal in February. It is expected to add at least $3 billion in lending authority to the SBA 7(a) Loan Program this year, solving the problem of more consumer demand for the loans than SBA has been able to provide. The bill would also remove the current lending cap of $750,000 per loan and allow loans up to $2 million, and, as it is phased in, would reduce the rate the federal government pays to subsidize the 7(a) Loan Program to zero. Essentially, loans made under the newly proposed structure would cost the government and the taxpayer much less and make much more money available to small-business owners and entrepreneurs.

The proposal builds on the success of the SBA Express program, which is a type of 7(a) loan that allows lenders to use their own forms and processes, make their own credit decisions, and service and liquidate the loans in their portfolio. In exchange for this authority, the SBA offers a 50 percent federal guarantee on the loan, rather than the 75 percent offered on a regular 7(a) loan. The federal guarantee is the amount of the loan covered by the SBA in case it cannot be repaid by the borrower.

Legislation proposing the change is expected to be introduced soon in both houses of Congress. Members of Congress are being briefed on the proposal prior to its introduction.

The SBA hosted two lender and trade association roundtables in February to discuss the proposal with lenders and other stakeholders. The U.S. Senate and U.S. House of Representative Small Business committees and SBA Regional Offices are doing the same thing.

While the proposal would significantly change the way SBA is doing business and certainly rely more on the public/private partnership, the idea represents another way to think outside the box, as we in government are challenged to produce savings and run our programs more efficiently and effectively.

We'll be keeping an eye on the legislation as it travels through Congress and looking forward to an end product that will benefit both small businesses and the lenders through which they access the capital necessary to expand and create jobs.