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SBA Funding Cuts Will Affect Loans for Entrepreneursmortgagepress.comSmall Business Administration , SBA Funding, President George Bush
President George Bush's administration has proposed eliminating
$360.5 million in funding for the Small Business Administration
(SBA), which could dramatically cut back on loans made to
entrepreneurs with nowhere else to turn. The federal budget
currently before Congress reduces SBA funding from $899.5 million
to $539 million. The largest proposed cut, $118 million, would
eliminate the government subsidy used to guarantee loans in the
SBA's core 7(a) program. Under the program, the government
guarantees 75 percent of any loan that goes into default, while
lenders who originate the loan pay for the other 25 percent.
Lenders are more willing to make loans they might not otherwise
with the guarantee.
An SBA representative in Washington, D.C., notes that the
program would survive better if it could support itself and not
depend on a government appropriation annually. To make up for the
budget shortfall, SBA borrowers would pay higher fees based on the
amount they borrow to fund the guarantee.
Borrowers with SBA loans under $150,000 would see no increase in
their fees. Borrowers in the $150,000 to $700,000 range would see
their fees rise from three to 3.5 percent and borrowers of $700,000
or more would see their fees rise from 3.5 to four percent.
Entrepreneurs who visit SBA centers would begin paying for a
certain amount of the service they receive. According to SBA
spokesperson Mike Stamer, the first hour of counseling would be
free, but an $11 per hour charge would apply to each hour
following. The most dramatic increase--77 percent--would hit
lenders who would pay 0.887 percent of each loan as a fee, up from
0.5 percent.
The National Association of Government Guaranteed Lenders has
mounted an aggressive lobbying effort that swayed the Senate to
vote 65 to 35 in order to restore funding for the SBA loan
guarantees. The House has voted to keep the original proposal
intact.