Higher SBA Guarantee Lids, Prepayment Fees Backed

The House approved bills Monday that would raise the caps on small-business loans backed by the federal government and penalize borrowers who repay early.

The primary bill would let the Small Business Administration guarantee as much as $1 million of loans made through its 7a program. The current limit is $750,000. It would also establish a $2 million maximum for each 7a loan.

A second bill would raise, to $1 million, the highest guarantee allowable under a separate SBA program for real estate development loans, with some exceptions.

Borrowers who have 7a loans with terms of more than 15 years and repay them early would be charged fees of 1% to 5% under the primary bill. The fees would be levied on borrowers who repay more than 25% of a loan within three years.

The bills' sponsor, Rep. James M. Talent, R-Mo., chairman of the House Small Business Committee, said the penalty is needed to make SBA loans more attractive to secondary markets and because prepayment is a sign that a borrower would qualify for a conventional loan.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER