Proposed SBA Streamlining Would Mean Fee Hikes

The Clinton Administration’s proposal to streamline the Small Business Administration would mean slightly higher interest rates for recipients of the agency’s federally guaranteed loans and a reduction in the number of SBA offices.

SBA officials, lenders and others in banking said the proposed loan fee increases and staff cutbacks are minimal and would help increase the number of those who participate in the federal loan programs. But several SBA offices in California would be likely to close, and some say the higher fees would be a burden for at least some small businesses.

SBA Administrator Philip Lader, who announced the proposed changes in a nationwide telephone conference call, said the changes would modernize the agency’s procedures. “This is not your father’s SBA anymore,” he said.

The proposed cutbacks would enable the SBA to reduce its budget by 29%, or $220 million, in 1996, and by $1.2 billion over the next five years, Lader said. The 42-year-old agency provides loan guarantees, technical support and other services for small businesses.

The Administration plan, which requires congressional approval, calls for the elimination of a yearly subsidy, amounting to $215 million this year, that is used to pay off SBA loan defaults. Instead, defaults would be covered by increased fees, ranging from 0.3% to 0.5% of the loan amount, to be paid by lenders and borrowers who participate in the SBA’s 7A and 504 guaranteed-loan programs.

In addition to higher fees, the SBA would lower the guarantee level. The SBA now guarantees from 70% to 90% of a loan. The new guarantees would range from a maximum of 85% for loans up to $100,000 to 50% of loans of more than $1 million.

Borrowers, who currently pay a 2% fee on the federally guaranteed portion of the loan, would be required to pay 2% on the total loan.

SBA officials said the changes would enable more businesses to secure loans. Last year, the SBA had to stop lending in its 7A program when the number of loan applicants exceeded the money set aside for guarantees, officials said.

James Whitney, a senior vice president at American Pacific State Bank in Sherman Oaks and vice chairman of the National Assn. of Government Guaranteed Lenders, agreed that more businesses would be able to secure loans under the proposed new rules. But he added that the fee changes overall would result in an average 3% increase in the cost of SBA loans.

For some businesses, the cost could be “very dramatic” Whitney said, adding, “It does make it harder and more expensive to get a loan.”

As for the staff changes, the SBA is proposing to extend an employee buyout program to include another 250 workers, in addition to the 258 already scheduled to leave under a month-old buyout program. Nationwide, the SBA’s 10 regional offices would be merged with district offices. Meanwhile, the 68 district offices nationwide would also be reduced.

In California, the San Francisco regional office, five district offices, the Sacramento branch office, a small office in Ventura County and a Fresno loan-processing center would be consolidated into two or three offices. * MAIN STORY: A1