In an effort to stretch its lending authority, the U.S. Small Business Administration is proposing a new fee structure that is expected to hurt the profits of large banks.
The new fees are expected to offset a 6% decline in the agency's budget authority, to $749 million. However, with the higher fees, the SBA hopes to be able to expand its loan guarantee program.
"We expect to be able to do more with less," said Cassandra Pulley, the SBA's deputy administrator. "Our intention is to serve as many small businesses as we can with the money we have appropriated."
Separately, agency administrator Philip Lader said he expects to unveil a new "small loan express" program in the next several weeks. The program will provide a guarantee of only 50%, but will permit lenders to use their own documentation.
"What it shows is a lower government guarantee and more flexibility for the lenders on the paperwork," said Mr. Lader.
The hike in loan fees is expected to cut the subsidy rate to 2.01%, from 2.73% currently. The subsidy rate is based upon fees generated by the program less its expenses and loan losses.
By reducing the subsidy rate to this level, the SBA is planning to guarantee up to $9.4 billion in loans made this year under its 7(a) program. Earlier this year, the agency capped its guarantee at $500,000 in a move to fund a growing number of loans.
To accomplish this, Ms. Pulley said the agency is asking Congress to quickly approve a new 30-basis-point fee on loans that banks make and keep in their portfolios. The SBA will continue to impose a 40-basis-point fee on loans that lenders resell into the secondary market.
At the same time, the agency wants to eliminate the sharing of guarantee fees on loans under $50,000 and on rural loans under $75,000.
Both of these changes will likely have the largest effect on large banks, which typically hold onto their SBA-backed loans. Small banks and nonbank lenders, which sell their loans into the secondary market, already pay a fee on those sales.
The banks that make bigger loans and don't sell into the secondary market will suffer under the proposal, said Jimmy Campbell, a senior vice president in charge of SBA lending for First Interstate Bank of Texas. "I don't think there is a question this would hurt our profitability."
Still, some lenders think the 30-basis-point fee does not go far enough.
"For the life of me, I don't understand the differential between the two rates," said Larry Wodarski, president of The Money Store Investment Corp. "We understood the 40-basis-point fee was a mechanism to reduce the subsidy rate. This new 30-basis-point fee to lenders who hold their loans is supposedly for the same purpose."
Sara Oppenheim of Medill News Service contributed to this article.