Though some of its other initiatives have alienated many of the lenders and borrowers it serves, the Small Business Administration can point to one as an absolute success - its effort to reduce the average size of the loans it guarantees under its flagship 7(a) program.
The SBA reported that for the government's 2004 fiscal year it guaranteed 45% more 7(a) loans than it did just two years ago, even though dollar volume stayed about the same.
SBA Administrator Hector V. Barreto said that guaranteeing more small loans has allowed the agency to help out record numbers of women and minority entrepreneurs. He credited the small-loan trend to the increasing popularity of the SBA Express program.
Lenders are funneling a growing number of deals through SBA Express, which offers them the option of reduced paperwork and quicker loan approvals in exchange for a smaller guarantee, even though Mr. Barreto drew fierce opposition when he proposed in February to expand the program gradually until it was mandatory for all 7(a) loans.
The SBA said that in fiscal 2004, which ended Sept. 30, it backed a record 74,825 7(a) loans, 11% more than in fiscal 2003.
Critics of the agency said Wednesday that 7(a) lending has slowed markedly in the first three weeks of fiscal 2005, and they blamed a lender fee hike that took effect Oct. 1.
They did not provide numbers, but Anthony Wilkerson, the president and chief executive of the National Association of Government Guaranteed Lenders, said SBA officials told his group that the agency is approving an average of $30 million of loans a day, against $60 million a day at the end of fiscal 2004.
Mr. Wilkerson acknowledged that loan volume is usually lower in the first half of a fiscal year, but he said seasonal ebbs and flows would not explain a dip of 50%.
SBA officials, however, say critics are overstating the drop; approvals are averaging $52 million a day, in line with past years, according to the agency's numbers.
"Everything seems to be running just fine," said Raul Cisneros, an associate administrator at the agency. "There have been a lot of predictions of doom and gloom, but the program is running well."
Echoing Mr. Cisneros' comments, Thomas W. Schneider, the president and CEO of $300 million-asset Pathfinder Bancorp Inc. in Oswego, N.Y., said he doubted the higher fees would have any appreciable effect on 7(a) demand.
But Davina A. Palazzo, a senior vice president at the $155 million-asset Coast National Bank in San Luis Obispo, Calif., said she felt sure the increase would hurt her company's business.
Ms. Palazzo said more borrowers would choose options such as lines of credit and even credit cards to avoid paying the higher up-front costs brought on by the fee hike.
In fiscal 2004 the program's dollar volume was $12.5 billion. That was also a record, but it was barely more than the previous mark of $12.2 billion, set in fiscal 2002.
Here is why: Karen C. Hontz, the SBA's deputy associate administrator for congressional and legislative affairs, said 56% of the 7(a) loans the agency guaranteed in fiscal 2004 went through SBA Express, which has an eligibility cap of $250,000. As a result, the program's average loan size continued its steady decline - from more than $230,000 in fiscal 2001 to $167,000 in fiscal 2004.
Mr. Barreto said in a press release issued Oct. 12, when the SBA released its fiscal 2004 statistics, "We have worked hard to reach out to every community, and we are seeing the fruits of our labor with these numbers."
His proposal to expand SBA Express had several obvious advantages from the agency's point of view, the main one being the reduction in the size of the loan guarantee it offers, from the 75% most conventional 7(a) loans receive now, to 50%. SBA lenders, including hundreds of banks, were quick to attack the plan, since it would require them to risk more of their money on SBA loans.
Ms. Hontz said lender opposition was so intense that the agency was stopped in its tracks. It has not formally withdrawn the proposal, which would need Congress' approval, but it is not actively lobbying lawmakers for their support.
Ms. Hontz, though, would not rule out the possibility of the SBA's trying to revive the proposal next year, when a new Congress assembles.
