July 9, 2004 -- The House of Representatives approved funding for the Small Business Administration on Wednesday that the agency would rather not have.
In an amendment to the appropriation bills for the Commerce, Justice and State Departments, the House voted overwhelmingly to restore $79 million in funding for the SBA's 7(a) loan program.
The 281-to-137 vote was a rejection of President Bush's and SBA administrator Hector V. Barreto's desire to eliminate the money, which serves as a subsidy to lower the fee small businesses pay when applying for the 7(a) loan. The problem, they say, is that once the subsidy is used up, the loans will stop and, therefore, it is better that it simply not exist. The Senate is expected to approve the subsidy.
Bush and Barreto instead favor a funding structure which would let borrower and lender fees pay for the program, rather than government funding that can dry up.
"The President's proposal," said SBA spokesman Raul Cisneros, "would allow us to run all of the time and be a resource that's always available."
The SBA, under the subsidized system, ran out of money in January, shutting down the program temporarily. Senator John Kerry and his running mate, John Edwards, were part of a group of senators pushing for emergency funding at the time. They argued that the system wasn't bad, just under funded.
There is fear that, if the subsidy was eliminated and the costs were passed along to the borrower, payments might become more of a struggle to make. Higher fees might also scare off those thinking of applying. Cisneros, however, said that the fee could be financed by simply adding it to the total of the loan, making it negligible.
The subsidy also makes the loan program more attractive to lenders. Critics of Bush's plan, such as the National Association of Government Guaranteed Lenders, say that some banks will cease to make the loans without them.
The 7(a) loans are the most basic and most often used SBA-guaranteed loans and are provided by lenders who choose to make their loan's based on SBA requirements. In turn, the SBA backs the loans up to 85 percent for loans under $150,000 and up to 75 percent for those above $150,000.
Bush's proposal would have allowed the SBA to guarantee up to $12.5 billion in loans. The SBA guaranteed a record $11.3 billion in 7(a) loans in fiscal year 2003 and is on pace to exceed that level in 2004.