7(a) Program Suspended; 504 Loans Unaffected

The U.S. Small Business Administration last week announced that effective immediately it will not approve requests for 7(a) loan guarantees until further notice.

In an official "policy notice", SBA Administrator Hector Barreto announced that the agency was forced to halt all 7(a) requests. This follows an announcement in December that capped 7(a) loans at $750,000.

This development has no impact on the 504 loan program or its funding. In fact, Barreto has touted the 504 program as an alternative to 7(a) in cases where the loan is for purchase of commercial real estate or equipment. Funds for 504 loans remain at surplus levels, and SBA Certified Development Companies such as Florida First Capital continue to process loan applications for commercial real estate and equipment at a record pace.

SBA said the 7(a) program was running at 40 percent ahead of the number of loans approved last year, and 45 percent ahead of dollars approved. The agency is operating under a continuing resolution limiting it to $3.3 billion in 7(a) loans through Jan. 31. By Jan. 2, the SBA had guaranteed $3.2 billion.

According to SBA spokesman Doug Heye, Barreto is trying to get $470 million transferred from the Office of Management and Budget as a temporary solution. But that won't fix the problem, he said. "We would most likely run out of money again.”

Heye also said the $750,000 cap likely will remain in effect for the rest of the fiscal year, which ends Sept. 30.

Until the cap was announced, SBA officials had maintained that the agency would be able to meet 7(a) loan demand this year.

Response to the 7(a) suspension from Congress came fast and furious, with harsh criticism from the Democrats and deep concern from some Republicans.

Sen. John Kerry (D-Mass) announced in a news release that he was demanding restoration of the program and sent a letter to SBA Administrator Barreto asking for details on the current state of the program. Kerry and other Democratic members of the Senate Committee on Small Business & Entrepreneurship sent a letter to President Bush “strongly objecting” to the program shut down.

Sen. Olympia Snowe (R-Maine) also issued a news release voicing “deep concern” over the decision, stating it “creates unnecessary anxiety in the small business community.” She also sent a letter to Barreto chastising the agency for shutting down the program without properly notifying Congress.

On the House side, Congresswoman Nydia Velazquez (D-N.Y.), ranking member of the House Small Business Committee, in a news release called the shut down “outrageous” and “detrimental to the growth of this nation’s small businesses.”

Many other politicians reacted to the shutdown, and we expect the controversy will continue.

Link to SBA Policy Notice:

http://www.ffcfc.com/PDF/sba010604.pdf