Can Congress Save 7(a)?

By SmallBusinessComputing Staff | Posted September 01, 2001
by Robert J. Wagman and William C. Gillis

WHEN PRESIDENT BUSH unveiled his budget proposal for the 2002 fiscal year in March, small-business advocates and lobbyists immediately denounced his plan to cut the Small Business Administration's overall budget by about 40 percent, from $899.5 billion to $539 billion.

Under Bush's budget blueprint, SBA programs such as the Small Business Development Centers, Women's Business Centers, and the increasingly important Disaster Relief Direct Loan program would have been significantly cut. What generated the loudest uproar in Congress, however, was Bush's proposal to eliminate $114.5 million in government subsidies for the 7(a) guaranteed business loan program.

Currently, the 7(a) program uses subsidies to ensure loans made by lenders to small businesses, many of which would not be able to secure a loan without such a guarantee. Damon Dozier, director of government and public affairs with
National Small Business United (NSBU), believes that in the absence of subsidies, small-business borrowers will be forced to pay steeper fees to qualify. "When you take away the subsidies, lenders must charge more for loans to protect themselves," Dozier says. Such fees, Dozier explains, will disqualify many small businesses seeking loans. "The Bush proposal harms the 7(a) program because businesses once eligible would no longer be," he says. "It's a barrier to market entry."

Many Democrats, and even some leading Republicans, were alarmed by the proposed SBA cuts. Sen. Kit Bond, R-Mo., then chairman, now ranking member of the Senate Small Business Committee, said in May that the administration's proposed budget would cripple many SBA programs, including 7(a). "I do not believe it helps our small businesses by eliminating funding for the 7(a) guaranteed loan program," Bond said, "which provides capital to more than 40,000 small businesses that would not be able to get similar loans from a bank."

In an uncommon bipartisan effort, both Democrats and Republicans voted to increase SBA funding by $264 million over the Administration's request in Congress' first budget resolution, passed in May.

The Congressional budgeting process for fiscal year 2002 (which begins October 1) continues this summer. Because of the widespread resistance to SBA cuts in Congress, it is likely the appropriations committee will restore the SBA budget to somewhere approaching its fiscal year 2001 levels, allowing for the full funding of most SBA programs, including 7(a).

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