The U.S. Small Business Administration recently proposed a key change that could avert a big cutback in its flagship loan program for fiscal 2003 – but the plan needs the approval of Congress, which adjourned late last month without deciding the issue.
The SBA’s 7(a) program guarantees commercial loans to small businesses, backing nearly $10 billion during fiscal year 2001. But for fiscal year 2003, which began Oct. 1, only about half that amount, $4.8 billion, will be available through the program.
That’s because the subsidy rate – the rate used by the government to determine how much money should be set aside to buffer commercial lenders from bad loans – was increased for fiscal 2003.
The higher the subsidy rate, the less money is available to small businesses through the SBA loan pool. Small-business groups long have contended that the subsidy rate is too high, estimating a much larger number of loan defaults than actually occurs.
The SBA announced on Nov. 14 that it has come up with a new model to determine the subsidy rate, which it says would better reflect the actual amount of loan defaults. It would “determine program risk more precisely, and increase (the SBA’s) ability to target loans to aspiring entrepreneurs who cannot obtain financing without a government guaranty,” a SBA statement reads.
In short: Small businesses would have access to billions of dollars in additional loan money for 2003 – and beyond – if the model is adopted.
But Congress still must approve the SBA’s plan. National Small Business United, a Washington, D.C.-based lobbying group, says approval of the model would drop the 7(a) program’s subsidy rate from 1.76 percent to 1.04 percent, which would boost lending capacity from $4.85 million to $9.86 million in 2003.
The outlook for the legislation is murky. The Senate unanimously approved the new SBA model last month, but the House did not take up the matter before adjourning on Nov. 22. The new makeup of Congress next year, which will reshuffle members of key committees such as small business and appropriations, makes it difficult to predict the final outcome, lobbyists say.
“With all the other things happening, like homeland security and war talk, small business just doesn’t seem to get on the agenda,” said Mark S. Deion, a Warwick-based small-business consultant and board member of the NSBU. And, as it stands, there’s much less money to go around.
The 7(a) program is vital to many Rhode Island small businesses – one in four of which has a 7(a) loan. The state’s small businesses received 932 loans secured through the program in fiscal year 2002 (ended Sept. 30), totaling $75 million, according to the Rhode Island district SBA office. Although the amount of loans was about the same as the year before, the value of loans dropped from $94 million in 2001.
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