SBA 7(a) Guarantee Cut Back Legislative Proposal Particularly Harmful to CUs

WASHINGTON-Last week, in an effort to broaden the reach of the Small Business Administration’s 7(a) loan program, the agency announced a legislative proposal it plans to push that will add at least $3 billion to the 7(a) program’s lending authority this year. The problem for credit unions is that SBA is getting the funds by lowering the guarantee it provides on its 7(a) loan program, which is popular among credit unions. The main reason for credit unions to get involved in SBA-backed lending was because of the 12.25% of assets cap credit unions are subject to for business loans; the guaranteed portion does not count against that cap. Since credit unions in general received the green light from SBA to participate in their lending programs, the number of credit unions has jumped from 76 to 139, CUNA Associate General Counsel and Senior Vice President for Regulatory Advocacy Mary Dunn pointed out. She added that she knows SBA would like to double and triple that number. “SBA’s been great to credit unions,” she said. To gain the additional $3 billion, the proposal would expand the SBA Express program, which allows lenders to apply for 7(a) loans using their own forms, which cuts costs and time for applying institutions. However, the Express program also lowers the guarantee to 50%, which would be applied to the entire 7(a) program. These changes have the potential to add 22,000 additional loans for entrepreneurs based on 2003′s numbers with the potential to add up to 500,000 new jobs, according to SBA. It would also permit SBA to remove the current $750,000 guarantee cap allowing for loans up to $2 million. “This proposal builds on the success of the SBA Express program, and by significantly increasing 7(a) lending authority, will allow the SBA to reach out to tens of thousands more small business owners every year,” SBA Administrator Hector V. Barreto said in a statement. “The legislation provides more money for small business loans this year, at a time when the program is facing unprecedented demand.” “NAFCU certainly supports increasing access to and utility of the SBA 7(a) loan program. We are carefully studying the proposed reforms to the 7(a) program that the SBA circulated yesterday with an eye towards determining precisely what their impact would be on credit unions and credit union members if they were implemented,” NAFCU Director of Legislative and Political Affairs Brad Thaler said. “We have yet to see legislation introduced, so we are at the beginning of this process.” The proposal is also aimed at moving the 7(a) program closer to a permanent zero subsidy level. According to preliminary data, SBA said that if this proposal becomes law, 7(a) could eliminate the subsidy with lower fees than those currently mandated by Congress. “It’s a good news, bad news situation,” Dunn said. The lower fees and simplified application process could be a boon to many credit unions, she explained, saying she got the feeling that one of the reasons more credit unions were not applying with SBA was because of the cumbersome application process. Dunn stressed that she was just at SBA earlier this month discussing with officials how to make the application process easier for credit unions. On the other hand, credit unions that have the resources for the normal process and are after the additional guarantee will not be so pleased with it. “We don’t want to cut any opportunity for any credit union that doesn’t want to take the express route,” she said. The 50% guarantee won’t suit everyone’s needs, Dunn acknowledged. Dunn also pointed out that SBA has taken some hits from the American Bankers Association lately, partially because they feel SBA has not run the 7(a) program properly, and the agency is doing some damage control to try to save the program. “In all honesty and in all fairness to SBA, they’re part of the administration.SBA is trying to figure out `how we can live within the target set for us,’ ” Dunn said. She added that if the administration is serious about its strong support for small businesses, SBA’s 7(a) program must be funded appropriately. CUNA also plans to weigh in with Congress when the time comes, Dunn said. CUNA has previously sent statements to Senate Small Business and Entrepreneurship Committee Chair Olympia Snowe (R-Maine) and House Small Business Committee Chairman Donald Manzullo (R-Ill.) expressing support for the greatest funding possible. [email protected]