Rep. Nydia Velazquez has long been advocating for change at the Small Business Administration, and as the incoming chairwoman of the House Small Business Committee, she is now in better position to make them.
The New York Democrat is expected to push to restore the congressional subsidy that for decades funded the SBA's loan programs - a move she says would lower user fees for borrowers and lenders. She also wants to raise the ceiling on the SBA's 7(a) loans, encourage lenders to make larger loans, and allow more direct bank involvement in disaster lending.
"My main goal will be to improve the environment for this nation's 26 million small businesses," Rep. Velazquez said in an e-mail to American Banker. "I will work to ensure capital markets are meeting the needs of small firms and that financing is affordable by making SBA's lending programs more accessible to business owners and lenders."
Rep. Velazquez's Senate counterpart is John Kerry, D-Mass. The incoming chairman of the Small Business and Entrepreneurship Committee, has also advocated for lower fees and more private-sector involvement in disaster lending.
Banking groups said that lenders and borrowers also may have more of a voice with the Democrats in control.
Paul Merski, the chief economist and director of federal tax policy for the Independent Community Bankers of America, said that in recent years the SBA's programs "were more on automatic pilot, and there was not a lot of interaction between the borrowers and lenders" and the congressional committees.
"At a minimum, there is going to be more openness and interaction between the lenders and borrowers and the committee chairs for these programs," he said.
Still, obstacles remain to any changes that Democrats would like to make.
SBA loan programs had historically been funded by a congressional subsidy, but that changed two years ago when the Bush administration approved a budget funding the program with user fees. Future budget proposals are likely to continue to rely on user fees, and the president could veto any legislation that aims to restore the congressional subsidy.
Moreover, the SBA has been running relatively smoothly since its loan programs have been funded with user fees. There have been no threats of an SBA shutdown, as there had been in previous years of budget volatility, and loan programs appear to be thriving.
The SBA guaranteed a record 90,477 of its 7(a) loans in its last fiscal year, versus 40,321 four years earlier. (The federal government's fiscal year ends Sept. 30.)
James Ballentine, the American Bankers Association's director of grassroots and community outreach, said that though lenders and borrowers would like to have their fees lowered, the SBA's recent successes could weaken the resolve of people pushing for changes.
"You might have some lenders say, 'We'll pay the fees, because at least we know the program will be up and running,' " Mr. Ballentine said.
The SBA guarantees up to 85% of small-business loans valued at less than $150,000, and up to 75% of loans of $150,000 to $2 million. It charges lenders a fee, which lenders often pass on to borrowers, for that guarantee. In December 2004 the SBA raised lenders' fees from 1% to 2% on the guaranteed portion of loans of less than $150,000, and from 2.5% to 3% on loans of $150,000 to $700,000. (The fee on loans above $700,000 remained 3.5%.)
Mike Stamler, an SBA spokesman, said loan volume has increased because user fees have given the agency a more dependable funding stream.
"Under a zero subsidy formula, the program can respond to whatever the demand is without having to ask for supplemental appropriations," Mr. Stamler said.
He also pointed out that fees are no higher than they were before the Sept. 11 attacks. The fees were lowered after the attacks to encourage more borrowing and were returned to the previous levels when the new funding mechanism took effect.
"Most borrowers are paying the same percentage fee as they have for most of the last 21 years," he said.
Sen. Kerry, though, maintains that user fees have been too high for years. While debating an SBA reauthorization bill in August, he said, "The president's budget reveals that borrowers and lenders already pay too much in fees, generating more than $800 million in overpayments since 1992, because the government routinely overestimates the amount of fees needed to cover the cost of the program."
Mr. Ballentine said lenders are facing the potential of other fees. For example, the comment period ended last month on a proposal for the SBA to charge examination fees. Under the proposal, banks and other lenders would be charged a fee to recover the costs of the examinations that the SBA conducts on its lenders' loan portfolios.
Loan size is another concern.
Under Hector V. Barreto, who stepped down as the SBA's administrator in July, the agency had focused on decreasing the average loan size, so that it could guarantee more loans. As a result, since 2000 the average has dropped nearly 40%, to $149,000.
Rep. Velazquez said she is concerned that the emphasis on smaller loans is limiting business owners' growth options.
"It is critical that we carefully evaluate the effects that this is having on the loans being made, and how it is impacting lender participation and small-business satisfaction within the program," she said in an e-mail.
About 79% of the 7(a) loans guaranteed in the last fiscal year were under $150,000, compared with 64% in 2002, Mr. Stamler said.
Mr. Ballentine said that loans of under $150,000 typically are operating loans, and that companies that want to expand usually need larger loans.
The shift toward smaller loans has been a boon to large banks, but not for community banks that often need to make large loans to help businesses in their communities flourish, he said.
Rep. Velazquez also would like to the maximum 7(a) loan amount to increase from $2 million to $3 million - a proposal that has received support from both sides of the aisle.
Disaster lending is another issue likely to be discussed in committees of the new Congress. Unlike 7(a) loans, which the SBA guarantees, the agency makes disaster loans directly to homeowners and businesses hit hard by hurricanes, blizzards, and other disasters.
However, the agency was roundly criticized for moving too slowly in response to Hurricane Katrina. Bankers and many Democratic lawmakers have been clamoring since to get banks more involved in the process to speed up recovery efforts.
The SBA had put out a solicitation for advice on how to get banks more involved, but no changes have been made.
In an e-mail to American Banker, Rep. Velazquez said, "We need to revamp our system of providing federal disaster assistance to small businesses. Enabling lenders to become more involved in the process, whether it be by making loans, assisting with processing, or in the distribution, are all areas we need to look into."
