Small Business Administration Cuts Off Loan Guarantees

The Kansas City Star, Mo

Dan Margolies

January 13, 2004

Jan. 13--Leawood consultant Larry Stocker was planning to use a loan backed by the Small Business Administration to expand his overseas export business.

So it came as a surprise last week when Bank of Blue Valley, where he had applied for the loan, told him that the SBA had suspended its 7(a) program.

"I was going to use the loan as working capital to open a new office, hire a new person and buy some product," said Stocker, who specializes in the export of water-treatment systems. "This has prevented me from going forward with any of those activities."

Stocker is one of countless small-business owners nationwide affected by the abrupt suspension of the program, which guarantees loans to small businesses.

Under the 7(a) program, commercial lenders are responsible for making and administering the loans. The SBA guarantees about 75 percent of the loans, meaning that if a borrower defaults, the government will reimburse the lender up to that amount.

SBA Administrator Hector V. Barreto announced the suspension last week, saying the agency didn't have enough money to meet unexpectedly strong demand.

Barreto said the SBA would return all loan applications that had not been processed as of Jan. 6. He said the agency was working with Congress and expected to resume the program "shortly."

SBA spokeswoman Sue Hensley said the program had simply run out of money.

"We've been operating under a continuing congressional resolution since October and gone without Congress passing our budget. It's difficult under those circumstances to run a loan program which has higher loan volume at certain times than others," she said.

Hensley said the SBA was asking for an additional $470 million in lending authority from Congress. The agency also is seeking to reduce the cap on individual loans from $2 million to $750,000.

In the meantime, participating lenders are scrambling to help customers whose loan applications were in the pipeline when the program was suspended.

Commerce Bank has tried to arrange alternative financing for such customers, including using other SBA programs, said Vice President Kathy Hunter, who is in charge of SBA lending at the bank.

"In some cases, we've gone to Plan B," she said. "In other situations, we've tried going to another SBA program, and in some situations we're kind of in a holding pattern."

Hunter said about a dozen SBA loan applications at Commerce were affected by the suspension. In fiscal 2003, Commerce, a preferred SBA lender, was the area's top SBA lender as measured by dollars, with 67 loans totaling $10.76 million.

In the SBA's Kansas City district, which encompasses 12 Missouri counties and 13 eastern Kansas counties, the agency guaranteed 589 loans totaling $89.9 million in fiscal 2003. In the region, which encompasses Missouri, Kansas, Nebraska and Iowa, the agency made 2,792 loans totaling $419.3 million.

Nationwide, 7(a) loans were up more than 30 percent in fiscal 2003, which ended Sept. 30, to about $11 billion. The amount would have been higher but for a $500,000 cap in place for the first five months of the year. For fiscal 2004, the SBA sought enough funding to guarantee only $9.6 billion in loans.

Hensley said the suspension was prompted by a surge in nationwide demand, which in recent months had risen from $40 million to $50 million per day to as much as double and even triple those amounts.

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(c) 2004, The Kansas City Star, Mo. Distributed by Knight Ridder/Tribune Business News