Fees Increase as SBA 7(a) Loan Program Shifts to `Self-Supporting' Model; CUNA Concerned About Zero Subsidy Model

WASHINGTON – With a bump up in fees for its 7(a) loans, the SBA has moved forward with its goal to operate the program without the help of Congressional dollars, aiming to prove it can stand on its own. Effective Oct. 1, credit unions and other lenders saw an increase in fees for the popular loan program and a rollback of guaranty limits. The changes helped to move the 7(a) program from what the SBA describes as a taxpayer-subsidized role to a “self-supporting” model relying on fees from borrowers and lenders. Since Oct. 1, the start of its 2005 fiscal year, the SBA has approved 6,215 7(a) loans totaling $1.036 billion, surpassing last year’s numbers for the same time period. The SBA said it approved 4,205 loans totaling nearly $644 million for the same period last fiscal year. This year, the agency approved $12.7 billion in government-guaranteed 7(a) loans, up from $11.3 billion in fiscal year 2003. “We have started off the fiscal year with a solid demand for loans, running at a higher rate than last year,” said SBA Administrator Hector Barreto. “This clearly indicates that small businesses are being started and expanding, they have confidence in the economy and in the process are creating jobs.” CUNA was among those raising concerns about the long-term effects of this self-supporting model. “We want to keep working with SBA to encourage credit union involvement in 7(a) and other SBA programs,” said CUNA President/CEO Dan Mica. “We do, however, remain concerned about inadequate financial support for the 7(a) program and the long-term effects of zero subsidy.” In July, Mica wrote to legislators urging them to reconsider providing $79 million towards the 7(a) loan program rather than implementing President Bush’s zero subsidy plan. He said the requested funding level for 7(a) would equal the appropriation in FY2004, and will provide approximately $14 billion in financing when combined with the current fee structure. After 51 years, the 7(a) program has become the largest single source for lending to the country’s 25 million small businesses. The government guarantees up to 85% of loans issued by banks and other commercial lenders for small-business applicants who can’t otherwise qualify for loans due to insufficient collateral or other credit-challenging situations. The loans can go as long as 25 years, compared to typical business loans that end after three or five years with a balloon payment. It is also the only SBA program available for refinancing outstanding loans. The SBA has said the higher fees will cover such program costs as loan defaults and Congress appropriations will no longer be relied on. This independent leap could also mean thwarting a shutdown of the 7(a) program down altogether, the agency has said. That scenario occurred in January when the SBA ran out of temporary financing it had received. For its 2005 fiscal year, Congress provided temporary financing through Nov. 20, which included nearly $11 million to subsidize 7(a) loans. The SBA has said the agency won’t use this money and will return it to the Treasury. The higher fees are scheduled to remain in place until Congress returns to Washington for a post-election session this month. -msamaad@cutimes