Senate Votes to Free Up Money for SBA Loans In one of its first actions of the new session, the Senate passed legislation to free up more money for the Small Business Administration’s 7(a) loan program. The new chair of the Senate Small Business Committee, Sen. Olympia Snowe (R-ME), won unanimous consent for passage of the bill Jan. 10. It now goes to the House. The bill, S. 141, authorizes the Office of Management and Budget to adopt a new method for calculating the 7(a) program’s subsidy rate. The change would enable SBA to boost 7(a) lending authority from $4.8 billion to $8.2 billion for fiscal 2003, Snowe said in a statement.. She said the increase would fund 21,000 additional loans. The Senate passed similar legislation last year, but a companion bill in the House never came up for a vote. It was sponsored by Small Business Committee Chairman Donald Manzullo (R-IL) and Budget Committee Chairman Jim Nussle (R-IA). Since October, SBA has capped 7(a) loans at $500,000, down from $2 million. SBA said it will reconsider the cap when its 2003 appropriation clears Congress. (SAA, 9/20/02) The 7(a) program permits banks and other private lenders to make loans to small firms for working capital and most other business purposes, with the federal government guaranteeing repayment of up to 85% of the loan. SBA said it had developed a new model that will reduce the amount of money it must hold back to cover anticipated loan defaults, increasing the amount available for lending. The recalculation will reduce the subsidy rate to 1.04%, from the current 1.76%. Congress had previously ordered SBA to cut fees on the loans. The fees are based on an estimate of the default rate, but OMB found SBA had vastly overstated the default rate and set the fees higher than necessary. A General Accounting Office study in 2001 found that, because of the overestimates, the 7(a) loan program has overcharged participants by almost $1.5 billion over the last 10 years.