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2005 Budget Axes Funding for Microloans

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April 2004 -- The Bush administration's budget for 2005 does not include funding for the U.S. Small Business Administration's (SBA) Microloan program.

The program, which began operating in 1992, assisted newly established or growing small businesses to secure small loans through nonprofit, community-based providers. In 2003, the program provided $26.5 million in loans and an additional $15 million in technical assistance to small businesses.

According to the SBA, the Microloan program has proved too costly for taxpayers.

"Every dollar lent under the program cost the taxpayers ninety-seven cents," Hector V. Barreto, Administrator of the SBA, said in a statement to a House Appropriations Committee on March 25. The SBA claims that loans handled by the Microloan program can be handled in the future by other programs like the SBA's 7(a) program, which relies on commercial lenders.

Some worry that this will not be the case, and that the elimination of the Microloan program will make loans for some small businesses impossible to obtain.

"The Microloan program serves a fundamentally unique clientele," New York senator Hillary Clinton wrote in a letter to the Senate Appropriations Committee. "Many of the recipients of Microloan programs would not qualify for 7(A) loans and often get turned down by commercial lenders because they are considered high risk or because the loan amounts they seek are considered too small. If the Microloan program is terminated, these individuals will simply be denied help."

The SBA denies that the closure of the program will have a negative impact on small businesses' access to funds.

"The private sector lending community has come to recognize that micro-borrowers are creditworthy," Hector V. Barreto, Administrator of the SBA, said in his March 25 statement. "Private sector lenders are now far more willing to lend to very small and to start-up businesses and in doing so are able to offer more competitive interest rates than the Agency's Microloan intermediaries."

Opponents to the program's elimination say they will continue to fight it.

"In this weak economy, where job growth is sporadic and anemic, it is even more important that we support entrepreneurs," said Clinton in a Capitol Hill Press Release. "The latest budget proposed by the president turns its back on the SBA and the small businesses it supports. We cannot let that happen. And I will fight in the Senate to make sure that it doesn't."

According to a recent Yankee Group study, small businesses employ 66 million Americans, or 54% of the population.





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