SBA Cuts Off 7(a) Program As Trades Lobby For New Funding

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The credit union trade groups are counting on Congress' pending return to session to resolve a funding shortage at the Small Business Administration, which abruptly announced last week it was pulling the plug on its popular 7(a) loan program.

The move, which comes as the one-year anniversary approaches of SBA's decision to open its programs to all credit unions, followed an earlier announcement that it intended to cut the maximum size of 7(a) loans to $750,000 from $2 million. That set off a flood of applications on top of already strong demand, and SBA was forced to announce it could not fund any new loans.

Both CUNA and NAFCU told The Credit Union Journal they believe the funding shortfall will be resolved shortly after Congress reconvenes Jan. 20, and perhaps even before.

A number of large loans that were in the pipeline-including at least one from a credit union-are stuck until a decision is made. The SBA had budgeted $9.95-million to guarantee loans in fiscal 2004, which began on Oct. 1, 2003, but had already guaranteed $3.8-billion in loans through December, leading to fears funding would be exhausted long before the fiscal year's conclusions.

The SBA indicated that by January 1st it was guaranteeing loans at double the pace of December. On Jan. 2, it noted it had 189 applications for loans of more than $750,000 each, representing $221 million in new guarantees.

Further leading to SBA's abrupt decision-which was roundly criticized by some who said the agency hadn't requested adequate funding in the first place-is the fact the SBA funding that is available was made possible by a Continuing Resolution that expires Jan. 31.

"(Approval to make SBA-guaranteed loans) is something NAFCU and CUNA have worked hard to get for credit unions," noted NAFCU spokesperson Jay Morris. "We're disappointed SBA had to temporarily suspend the 7(a) loan program, but we understand that it is temporary. We expect to see, and will vigorously pursue, new funding."

One day after the suspension of new guarantees was announced, CUNA had authored and sent a letter to the Small Business Administration saying it was prepared to assist the agency in getting its funding restored.

CUNA's Mary Dunn said the trade group understood why the earlier decision had been made to reduce guaranteed loans to $750,000, and added, "There are a few credit unions that could have benefitted from the higher amount, but most credit unions are not going to be that disadvantaged by the lower amount. But we do want to get this resolved so we can get the program making loans again."

Dunn said CUNA began hearing concerns from credit unions that participate in SBA loans as soon as the decisions were announced.

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