WASHINGTON - The new head of the Small Business Administration says congressional proposals to reform his agency's general business loan program are better than one made earlier this year by President Clinton.
Like the President, Rep. John J. LaFalce, D-N.Y., and Sen. Dale Bumpers, D-Ark., have proposed cutting government guarantees on some SBA loans and setting up new fees. But their proposals are far less drastic than Mr. Clinton's.
"I wholeheartedly believe the proposals of both the Senate and House are vast improvements over the original proposal put forward by the administration," SBA Administrator Erskine B. Bowles told the House Small Business Committee on Thursday.
Less of a Sacrifice
Mr. Bowles and the committee agreed that the congressional proposals would be less painful for the lending industry than the President's plan.
"I'm fearful these [Mr. Clinton's] changes are too onerous and will adversely impact on small-business borrowers," Rep. LaFalce said.
Congress is expected to appropriate about $155 million for the SBA's 7(a) program next year, roughly what the President requested. That's $169 million less than this year's funding, a necessary cut to help reduce the budget deficit, Mr. Bowles told the committee.
Unless some guarantees are cut and unless new fees are added, the SBA would be able to fund only about $3.3 billion of loan guarantees, he said. But demand for the 7(a) loans could be almost triple that, he said.
"I've found no one who doesn't expect demand to be somewhere in the $7 [billion] to $9 billion range," Mr. Bowles said.
Mr. Bowles said that while he expects the banking industry to complain about the changes, the broader goal of deficit reduction makes them necessary.
He is already talking to bankers and has found them to be understanding once he has explained the reasoning behind the proposed changes.
"While they didn't particularly fall in love with any of these proposals, I think they found them acceptable," he said.
"Each of these proposals in one way or another will cut into the profitability of these loans for the lending community," he added. "But I do believe it will remain a very profitable form of lending for the banks."
Many in Congress want to implement the changes soon, so savings in this year's budget could be carried over to 1994. If passed, the changes could be implemented as early as Sept. 1.
Impact on Capital Formation
But many remain unconvinced. Richard D. Turner, chairman of the National Association of Government Guaranteed Lenders, told the committee that efforts to cut the deficit are hurting capital formation, a necessary ingredient for job creation and economic growth.
"The administration's lack of funding support for this program indicates that solving the credit crunch was not as high a priority as they have stated publicly," he said.
But he did say that each of the congressional proposals "genuinely tries to make the best out of a bad choice."