Banks Welcome Compromise On SBA Loan Guarantees

WASHINGTON - Relieved that the industry escaped harsher alternatives, bank lobbyists applauded the Senate for voting to rescue the Small Business Administration's loan guarantee program.

The bill, introduced in June by Sen. Christopher S. Bond, R-Mo., would push more risk onto banks by reducing the government's guarantee under its 7(a) program to 75% of the value of loans over $100,000.

Under Sen. Bond's approach, the current fee of 2% on the guaranteed portion of most loans also would be replaced with a sliding scale of one- time fees on borrowers.

While this would represent an increase in the current up-front charges, it is far less costly than the 50-basis-point interest rate surcharge payable over the life of the loan that the administration proposed.

"Compared to the administration proposal, this is a very measured and prudent response to the issues of cutting costs at the SBA without severely damaging its programs," said Herb Spira, tax counsel for the Independent Bankers Association of America.

Current loan guarantee levels are 90% for loans up to $155,000. Larger loans, for as much as $750,000, are guaranteed up to 85% for loan periods of 10 years or less, and 75% if the term exceeds 10 years.

Because of its popularity, the loan guarantee program will run out of money on Sept. 1. The bill the Senate approved last Friday would fund the program for the remainder of this fiscal year and through fiscal 1996.

In March, SBA Administrator Philip Lader announced plans to reduce the size of the guarantee while raising fees and levying the 0.5% interest surcharge. The SBA also proposed eliminating the rebate that lenders currently receive on half of the up-front guarantee fee for loans under $50,000.

The goal of the SBA proposal was to eliminate the agency's reliance on congressional appropriations. The subsidy rate is currently 2.74% of the dollar amount in total loans made under the SBA's 7(a) loan program.

But Sen. Bond, who chairs the Senate Small Business Committee, was concerned that axing the government subsidy would threaten the success of the program. His bill would reduce the current rate by more than half, to 1.29%.

Sen. Bond's bill leaves the agency's "Lowdoc" program - shorthand for low-documentation loans - untouched. The administration's proposal would force participating lenders to pay an additional $523 fee.

The House Small Business Committee approved a similar bill Aug. 4.

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