Small Business Administration closing costs and lender fees would shrink under the Clinton administration's fiscal 2000 budget proposal, but so would the agency's lending authority.

The budget, released Monday, proposed several key changes to the SBA's 7a loan guarantee program. It would raise to $150,000 from $100,000 the maximum loan size that qualifies for an 80% SBA guarantee. On a $150,000 loan, that would mean $120,000 was guaranteed, versus $112,500 today. The change would lower the bank's risk as well as its capital requirement.

The proposal would reduce to 2% from 3% the up-front fee a small business pays for the guaranteed portion of an SBA loan. On a $150,000 loan, the borrower would pay $2,400, versus $3,375 today.

The budget plan would also cut the lender's monthly fee to 30 basis points from 50 basis points. On a $150,000 loan, a bank could save as much as $17 per month.

"That's a concrete way in which we're proposing to increase access" for minorities and other underserved small-business owners, said SBA Administrator Aida Alvarez.

The SBA estimates that $4 of every $10 guaranteed under the 7a program would qualify for the lower fees. Bank trade groups said the changes would make 7a loans more attractive.

But some lenders worried that the SBA could run out of guarantee authority in fiscal year 2000.

The lower fees could increase demand. So, too, could an initiative to make 10 more nonbanks eligible 7a lenders.

However, President Clinton's budget proposes reducing the SBA's guarantee authority by 5%, to $10.5 billion.

"It sounds like they're trying to rev up demand again," said James E. Murray, chairman of Washington-based Small Business Funding Corp. "I can't understand why they would try to do that without also increasing the authorized volume."

In a conference call Monday, SBA officials said the $10.5 billion would be "adequate."

"If it's a boom year and the program runs out of funds, we would have every reason to ask for a supplemental appropriation," a representative said later, "but we don't think that we will be necessary."

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