SBA Gets More Funds to Resume Business Loans : Entrepreneurs: Program that ran out of money in April now can guarantee another $3.2 billion in private financing.
After weeks of pressure from cash-starved small businesses, federal officials have poured more money into a popular government-guaranteed loan program that ran out of money in April, leaving thousands of entrepreneurs in a financial lurch.
President Clinton approved a $175-million supplemental appropriation to the U.S. Small Business Administration on July 3, allowing the agency to continue what is known in bureaucratese as its 7(a) guaranteed loan program for thousands of entrepreneurs, including many in the Los Angeles area whose businesses were damaged in last year’s riots.
The new funding will enable $3.2 billion in additional guaranteed loans to be made.
The agency had reached the limit of its underwriting capability following an avalanche of loan requests from entrepreneurs unable to find other sources of financing in the nation’s ongoing credit crunch.
SBA officials, who had suspended the processing of new loan applications when funds were depleted April 27, had warned that without more money, applicants would not be able to get government-guaranteed loans until the next fiscal year starting Oct. 1.
“This is great news to the thousands of small businesses depending on the 7(a) program for their capital needs,” said Anthony Wilkinson, president of the National Assn. of Government Guaranteed Lenders, which includes banks and other institutions that profit by SBA guarantees. “I hope this vote of confidence means that small business won’t be put in this situation again.”
Demand for SBA-based loans reached a record $5.6 billion during the 1992 fiscal year, an increase of more than 35% over 1991. And applicants had continued to besiege the SBA with $30 million a day in unfilled requests for the guaranteed loans, each of which costs taxpayers about a nickel per dollar of loan amount.
Although the SBA guarantees the 7(a) lending, the loans are made and financed by private-sector banks and other lending institutions.
The revival of the loan program comes at a critical time for small businesses.
About 68% of the small businesses surveyed by Arthur Andersen’s Enterprise Group and National Small Business United, a Washington-based trade group, reported problems in obtaining loans this year, compared to 52% a year ago. About 38% of the 687 small businesses surveyed said they have been unable to meet their capital needs during the last 12 months.
“What’s surprising is that money-making small and mid-size businesses are being turned down,” said Nancy Pechloff, managing director of Arthur Andersen’s. “According to the survey, 51% of those who applied for loans and were unsuccessful reported a net profit in their last fiscal year.”
But although revival of funds to the SBA program is good news for small businesses in need of cash, more trouble may arise for fiscal 1994. Clinton has budgeted $155 million for that year’s 7(a) program, or $20 million less than the supplemental appropriation he approved earlier this month.
The proposed funding, according to banking industry officials, would finance enough loan guarantees for only about $6.6 billion of the anticipated loan demand of nearly $8 billion.
