Congress is expected to miss an Oct. 1 deadline to keep lender fees associated with the Small Business Administration's flagship 7(a) loan guarantee program from jumping by 40% to 100%.
A 3-year-old law that temporarily reduced the fees lenders pay for their 7(a) loan guarantees is scheduled to sunset on Sept. 30. Though the Senate may act in time, industry sources do not expect the House to pass legislation extending the fee cut by Friday's deadline.
Without congressional action, higher fees will add thousands of dollars to the cost of every 7(a) loan, and the maximum size of loans eligible for the program's guarantees will be halved, to $1 million.
The Bush administration opposes the extension and plans to use the increase to restructure the 7(a) program's funding.
The administration's plan, proposed in February, would use revenue generated by fee increases to eliminate the annual congressionally appropriated subsidy that has covered the program's loan losses. For fiscal 2004 this credit subsidy was $79 million.
7(a) is the SBA's largest lending program. It accounted for 91% of the 74,497 loans it guaranteed between Oct. 1, 2003, and Aug. 11.
But SBA funding is routinely interrupted by politics. In each of the past two fiscal years, delays in passing the federal budget forced the agency to ration capital by temporarily slashing the size of the 7(a) loans it guarantees, and in January it shut the program down altogether for a week.
Hector V. Barreto, the agency's administrator, has argued that funding 7(a) with fees instead of an annual congressional appropriation would make it and other SBA programs more reliable. The budget he submitted for fiscal 2005, which begins Oct. 1, does not include a credit subsidy.
The administration's idea has drawn sharp criticism from lenders and borrowers who object to the added fees as well as to Mr. Barreto's plan to reduce the SBA's guarantee to 50% from 75% of the loan's total.
The administration's proposal has also come under attack in Congress, where bipartisan majorities in both the House and Senate have voted to restore the status quo and give the 7(a) program a credit subsidy of at least $70 million in fiscal 2005.
In June, 65 House Republicans joined 89 Democrats in signing a letter calling for a $79 million credit subsidy.
Rep. Don Manzulo, R-Ill., the chairman of the House Small Business Committee, introduced legislation now under consideration that would provide 7(a) with a $70 million credit subsidy during fiscal 2005.
The Independent Community Bankers of America, the American Bankers Association, and the U.S. Chamber of Commerce have endorsed Rep. Manzulo's bill, HR5108, as well as its Senate twin, S2821, which was introduced by Sen. Olympia Snowe, R-Maine, the chairwoman of the Senate Small Business Committee.
But the Bush administration opposes the legislation and is expected to prevent passage in the House.
"We have serious concerns about those bills," said Raul Cisneros, the SBA's deputy director. "With regards to 7(a), we believe they undermine the president's zero-subsidy proposal."
"They said as clear as I ever heard them say that the administration is opposing the bill," said Christopher L. Crawford, the president and chief executive of the National Association of Development Companies.
Community development companies make loans under the SBA's 504 program, which provides financing for acquiring property and making large capital expenditures. The 7(a) program provides financing for regular commercial business loans.
Craig Orfield, a spokesman for Sen. Snowe, said Thursday that the Senate still hoped to pass the reauthorization bill before the Oct. 1 deadline. But prospects are more uncertain in the House, where GOP leaders reportedly are resisting calls to disregard the President's wishes and schedule a vote.
"Unfortunately, due to opposition by the White House and the House Republican Leadership, the reauthorization of the SBA and its programs, like so many other initiatives, will not be taken care of by the time Congress leaves this fall," Rep. Nydia Velazquez, D-N.Y., said in a statement Friday.
"Small businesses and lenders are going to see their fees double. This is the wrong move to make at a time when our economy is struggling, and we should be doing all it takes to help small businesses."
