House Urges Bush to Fund SBA 7(a) Loan Program for 2005

WASHINGTON – While President Bush was applauded for increasing funding for U.S. Small Business Administration’s 7(a) loans in April by $3 billion for fiscal year 2004, legislators are concerned that the program may face critical cutbacks for fiscal year 2005. Legislators have called on the Bush administration to continue funding the 7(a) loan program. SBA Administrator Hector Barreto has proposed to Bush an end to the federal subsidy of 7(a) loans by raising lender fees and trimming the percentage guarantees provided on the loans to 50%. So far, 154 House members – 89 Democrats and 65 Republicans – have voiced their opposition to the proposal concerned that eliminating federal subsidies and increasing fees would create a roadblock for small business owners in need of funding. The SBA suspended 7(a) loans in January but resumed operation a week later after securing an additional $470 million. In addition to a $3 billion increase for the program, which grew the agency’s funding to $12.7 billion, the loan cap was raised from $750,000 to $2 million for fiscal year 2004, which ends Sept. 30. At press time, the Appropriations Committee was scheduled to vote on SBA’s 2005 budget. Separately, NCUA’s Office of General Counsel issued an opinion of its interpretation of the Federal CU Act and the NCUA’s member business lending (MBL) regulations for the SBA 7(a) business lending program. One interpretation had to do with recoupment fees. NCUA said the SBA’s subsidy recoupment fee, which is part of the 7(a) program, does not appear to be a prepayment penalty and a federal credit union may collect it. Even if the fee were a prepayment penalty, a federal credit union could charge it, the May NCUA opinion states. While a federal credit union generally cannot charge a prepayment penalty on a loan, it can if it is a part of government guaranteed or insured loan program.