SBA to Cap Lending in Loan Program

The U.S. Small Business Administration will limit lending in its largest loan program to $80 million a week to ensure that the program does not run out of money before Sept. 30.

The measure will guarantee that small business will have an opportunity to apply for the popular SBA program through the end of the federal fiscal year.

But it could also mean longer waits for loan approval or even a backlog of unfunded loans, SBA officials said.

The 7(a) program guarantees loans made by commercial lenders to small companies that have difficulty getting financing through regular banking channels.

SBA Administrator Aida Alvarez on Wednesday gave the required 15-day notice of the action to the congressional small business committees.

But she also advised them that the SBA, with committee approval, would be willing to put the lending cap into effect immediately to avoid a surge in applicants trying to beat the ceiling deadline.

“We must take an interim step to preserve flexibility for the rest of the fiscal year,” Alvarez told the committee chairmen in a letter. “We will implement it sooner if the House and Senate small business committees are willing to waive a portion of the notice period.”

However, congressional action appeared unlikely.

The need for a weekly lending limit arose when demand for 7(a) loans surged last month by $1.5 billion.

Last year the SBA asked for $11 billion in funding for the program, but Congress approved only $7.8 billion. When loans began heading for a $9.5-billion yearly level, the SBA announced it would limit the size of the loans to $500,000 beginning May 5.

But because the administrator is required to give a 15-day notice of proposed lending limits, small businesses and lenders rushed to send in applications before the ceiling took effect. The lending limit actually speeded up lending instead of slowing it down, prompting the need for the second slowdown measure.

So far this fiscal year, the 7(a) program has guaranteed $6.2 billion in loans, with $1.6 billion remaining for the nearly 19 weeks left of the fiscal year.

At the district office level, the new weekly lending limits mean that loans will be approved based on the dates when the application is complete.

District directors will be able to move certain businesses ahead of others if an emergency exists and it can be documented in the loan papers, said an SBA official in Washington, D.C.

Demand for the loans has increased over the years, but federal budget constraints have limited funding. In 1993, the 7(a) program was shut down for five weeks when it ran out of money and, in 1995, a lending ceiling was imposed.

Alvarez has created a task force to examine the program and has ordered a review of the loans made during the earlier lending surge to ensure that they were not hastily approved and that they meet safety and soundness standards.