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SBA Lifts Loan Cap

The Small Business Administration has lifted its $500,000 cap on guaranteed loans under the 7(a) program, allowing loans up to $2 million as authorized by law.

But SBA Administrator Hector Barreto said the program “will continue to promote smaller loans.”

In its 2004 budget proposal, the Bush administration said, “SBA is actively encouraging financial institutions to increase lending to start-up firms, low-income entrepreneurs and borrowers in search of financing below $150,000.” The administration said those categories of businesses have the greatest difficulty getting credit.

Barreto told the House Small Business Committee that the emphasis on smaller loans has increased the number of 7(a) loans going to women and minorities.

The $500,000 cap was imposed Oct. 1. SBA said it was necessary because Congress had not passed its fiscal 2003 appropriation and the agency feared it would run out of money to fund the loan program.

The appropriation finally cleared Congress in February.

Members of Congress from both parties had urged SBA to restore the $2 million ceiling.

Congress also approved legislation last month that reduced the subsidy rate on 7(a) loans. The subsidy rate determines how much money SBA must hold in reserve to cover anticipated defaults.

SBA lifted the cap Feb. 25, the same day President Bush signed the bill. Testifying Feb. 27 before the House Small Business Committee, Barreto said about $9.3 will be available for 7(a) loans in fiscal 2003, the same as last year.

The 2004 budget request would support about $9.4 billion in loans, he said.

That is not nearly enough to meet the demand for the loans, according to the National Association of Government Guaranteed Lenders. It estimates demand at $12.5 billion in fiscal 2004.

Barreto said an effort to reduce the subsidy rate on Section 504 loans is “on a fast track,” but he declined to say when the agency would be ready to take action. Those loans are most commonly used to purchase land and buildings.


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