The U.S. Small Business Administration announced it is reopening the 7(a) loan program as of Wednesday, Jan. 14, with an additional $470 million in lending authority and a loan cap of $750,000 per loan recipient.
Last Tuesday, the SBA suspended the popular loan program, citing a lack of money and failure of the U.S. Senate to pass an appropriations bill that included 2004 funding for the agency. Since the beginning of the fiscal year on Oct. 1, 2003, SBA appropriations have come from a series of short-term continuing resolutions based on 2003 budget levels.
“It is critical to our nation’s small business community that the 7(a) program is back up and running as quickly as possible,” said Hector V. Barreto, SBA Administrator. “We are reopening the program tomorrow with the funding that Congress has approved, and the SBA will provide 7(a) loans as long as the necessary funding is available. However, it is extremely important that Congress pass an annual appropriation to keep this vital loan program open, without interruption.”
The SBA reopened the loans Wednesday with $470 million in lending authority under the continuing resolution through Jan. 31. If demand for the loans remain at current levels, this amount may not be adequate to keep the program running through the end the month.
U.S. Sen. Olympia J. Snowe (R-Maine), chair of the Senate Committee on Small Business and Entrepreneurship, spoke with SBA Administrator Hector Barreto via telephone on Monday to discuss the systemic failure that led to the unexpected shutdown of the widely popular SBA 7(a) loan program. Snowe urged the SBA to restart the loan program as soon as possible.
“The abrupt suspension of the vital 7(a) loan program demonstrated an institutional breakdown in communications at the SBA. That, in turn, led to its failure to properly alert Congress of the funding shortfall, which left thousands of small business owners and entrepreneurs abandoned by the federal government,” said Snowe. “Administrator Barreto and I have discussed at length solutions to prevent future lapses in communication, while exploring options for short and long-term improvements to the 7(a) loan guarantee program to ensure the funding supply is available to meet increased demands.”
Additionally, Snowe awaits a proposal from the SBA to the Senate Committee on Small Business detailing options for the reprogramming of federal funding which will restore the maximum loan guarantee to the Congressionally-approved level of $2 million, and ensure that future funding shortfalls are averted. The SBA, which this month imposed a $750,000 loan guarantee cap, has signaled that the proposal could be submitted as early as today.
“I remain concerned that the new loan cap will unfairly limit the planned ventures of small business owners and discourage future entrepreneurs from utilizing the 7(a) loan guarantee program, which has boosted the nation’s economy by assisting more than 99,000 existing small businesses and financing 40,000 new businesses in the past three years,” Snowe continued.
The conversation with Administrator Barreto was in addition to a letter Snowe sent on Jan. 8 conveying her “deep concern” over the SBA’s suspension of the 7(a) loan program. In the letter, Snowe said the SBA’s decision creates unnecessary anxiety in the small business community and could have an impact on the ability of small businesses to generate new jobs.
“I am disappointed by the Administration’s decision to suspend 7(a) lending, which plays such a large role in providing basic operating and expansion capital to our small businesses,” said Snowe, chair of the Senate Committee on Small Business and Entrepreneurship. “This is a highly unusual move that could create a hardship for thousands of independent and family owned firms, particularly in Maine where small businesses account for virtually every new job created. ”
Over the last three years, the 7(a) program has provided financing to more than 40,000 start-up businesses and more than 99,000 existing small businesses. Those loans totaled more than $28 billion over the period, and helped small businesses create more than one million new jobs. That level of performance has drawn high praise from SBA officials as well as commercial banks and lenders, making the 7(a) Program one of the most efficient and effective programs administered by the SBA.
“In light of 7(a)’s strong track record and the President’s commitment to create new jobs and energize the economy, I hope we can expect a quick resolution of this problem and a public show of commitment by the Administration to the 7(a) Program’s long term viability,” Snowe said.
Snowe’s Small Business Committee staff will continue to meet with SBA and Office of Management and Budget (OMB) officials this week to provide for a timely restart to the 7(a) loan program and to examine further avenues of funding available for the SBA program.
The SBA began accepting applications for 7(a) loans at 12 pm on Wednesday, Jan. 14.
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