The U.S. Small Business Administration says it will cut the maximum loan size of its popular 7(a) program to $500,000 in a move to deal with a $2.2 billion funding shortfall.
The decision by agency chief administrator Philip Lader takes effect Jan. 1.
"This action is being taken to ensure that adequate funding is available for the balance of the fiscal year," Mr. Lader said in a statement.
"Without this change, the $7.8 billion in currently available funds would be exhausted prior to the end of the fiscal year."
Loan demand is running at an average of $38 million a day. At this rate, the National Association of Guaranteed Government Lenders estimates, demand will exceed $10 billion in fiscal 1995.
The reduction marks the first time the SBA has reduced its guarantee amount since the 7(a) program began. Currently, the agency guarantees as much as $750,000 on loans in this program.
The SBA's exposure will be cut to a maximum of $425,000, based upon a maximum guarantee of 85%.
Only loans made under its 7(a) loan program are affected. The SBA's Export Working Capital, GreenLine Asset Based, Defense Diversification, Pollution Control, and 504 Certified Development Company loan programs are not affected.
"The change will allow the agency to serve the greatest number of small businesses possible," Mr. Lader said.