In a turnabout, the Small Business Administration has decided to drop restrictions recently imposed on its largest loan program.
Late Wednesday, the agency said an accounting error discovered by the General Accounting Office had caused an overestimation of the cost of guaranteeing loans to small businesses under the 7(a) program.
Fixing the mistake will allow the SBA to back $2.5 billion more in loans, or $10.3 billion total, during the current fiscal year.
"We expect that's enough to satisfy demand," an SBA spokesman said. "We might have a little left over at the end of the year to apply to next year."
In early May, SBA Administrator Aida M. Alvarez had said the agency was running out of money. She cut the cap on loans in the 7(a) program by half, to $500,000, for the fiscal year ending Sept. 30.
Last week she cracked down even harder, saying the SBA would approve only $80 million of 7(a) loans per week.
Ms. Alvarez now plans to drop these emergency lending limits by late June, or earlier if Congress waives the required 15-day notification period.
Lenders were ecstatic, but the chairman of the Senate Small Business Committee called the miscalculation "a significant error" that warrants more scrutiny before the committee authorizes SBA's budget for the next three years.
"While I am happy that the loan shortage crisis facing small business has been averted," said Sen. Christopher S. Bond, R-Mo., "I am astounded by the magnitude of this mistake by the Office of Management and Budget and the SBA."
The SBA guarantees 75% to 80% of 7(a) loans made to small businesses that cannot find affordable terms elsewhere.