Legislation reducing government backing for the Small Business Administration's main loan program could force lenders to cut off marginal borrowers, bankers say.
"There is a real concern that some banks will curtail their SBA loans," said Scott Wilfong, senior vice president of First National Bank of Maryland.
The bill, which President Clinton was scheduled to sign late last week, was intended to make limited SBA resources go a bit further.
Guarantee Reduced to 70%
The idea was to Provide businesses with more loans without increasing the budget deficit.
The agency doesn't actually lend money, but uses its funding to provide guarantees that eliminate much of the risk for banks, thrifts and others that lend to small business. The new law reduces the government loan guarantee to 70%, from 80%, for most small-business borrowers.
Rates and Fees Will Rise
It also limits guarantees on real estate loans above $155,000 to 75%, down from 85%, and imposes a fee of two-fifths of 1% on loans sold to the secondary market.
"The crafters of this proposal are trying to sell this as good for small business because the SBA program won't run out of funds," said Anthony R. Wilkinson, president of the National Association of Government Guaranteed Lenders Inc.
"What they are not saying is at the same time it will increase interest rates and increase fees," he said.
Demand Problem Is Seen
Under Pressure to reduce the deficit, lawmakers said they would not be able to provide enough money to meet the growing demand for SBA loans.
At the same time, there is pressure to make more loans to help get the economy going.
The agency expects to guarantee up to $9 billion in loans in fiscal 1994.
Using an 80% guarantee, the agency would have been able to back only $3.2 billion in loans.