Bill Proposed to Expand 7(a) Loan Program

 

August 4, 2005--Senate Small Business Committee chair Olympia Snowe introduced legislation Monday to expand and streamline the Small Business Administration's biggest loan program.

Backers of Senator Snowe's "Small Business Lending Improvement Act" say the bill will make it easier for banks that participate in the SBA's 7(a) loan program to fund businesses in every state. Currently, firms with "preferred lender" status must apply for licenses in each of the 71 SBA districts in which they wish to make 7(a) loans, a process that Snowe, a moderate Republican from Maine who has led efforts to expand the program, called "cumbersome and duplicative."

Anthony Wilkinson, president of the National Association of Government Guaranteed Lenders (NAGGL), said that the proposal would lower lender costs, which could allow more small companies access to a program that doled out $12.7 billion in start-up and expansion capital to small companies in 2004. "Right now it's just pushing a lot of paper," he said, adding that some lenders have a staff member dedicated exclusively to the applying for preferred status. "This is legislation that we are fully supporting." The bill is unlikely to draw ire from Senate Democrats, who unanimously approved a bill containing a similar provision in 2003. SBA spokesman Mike Stamler said the preferred lender proposal is "in line with what we're trying to do administratively."

He added that the SBA was still reviewing two other provisions in the legislation -- one to increase the maximum loan size to $3 million from $2 million and another that would allow a company's net worth and income to be considered in determining whether it is small enough for the program.

The loan size increase is necessary, according to supporters, because of rising costs of real estate and equipment. Previously, companies were able to circumvent the limit by combining the 7(a) loan with a traditional mortgage, a practice that was phased out last year by the SBA. "Lenders are missing opportunities now with the loans," said Wilkinson. "The bill will allow us to do some bigger transactions that we cannot currently finance."

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    • Max Chafkin

    Senior writer Max Chafkin has profiled companies such as Yelp, Zappos, Twitter, Threadless, and Tesla for the magazine. He lives in Brooklyn, New York.


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