The three-week government shutdown shook the faith of some of the Small Business Administration's most loyal client banks, who are now worried that the unresolved budget battle could cause another shutdown.

SBA offices around the country were closed for most of January, and approval of 2,000 small business loans was delayed as a result. But SBA officials are trying to assure lenders that the agency is immune to another government shutdown.

Even if President Clinton and Congress can't agree on a plan to balance the budget, the SBA's loan programs are fully funded through September.

"The SBA's cornerstone lending program is funded through the entire fiscal year," said Small Business Administrator Philip Lader. "All of our staff working on that program are covered."

But bankers are still skittish, and fear that the shutdown wounded the SBA's credibility with potential small-business customers.

"We're very concerned that this might happen again, because we have marketed the SBA program as something that every small business should attempt to have," said Lee Fletcher, first vice-president of Michigan National Bank in Farmington Hills. "When the SBA shuts down, it simply defeats our marketing efforts."

Because of the shutdown, Mr. Fletcher said, Michigan National lost two potential SBA loan customers and was forced to delay eight loan applications - a fourth of its recent yearly average.

"The shutdown was very disconcerting for businesses, because they have repurchasing agreements and other deadlines that couldn't wait" for delayed SBA loans, Mr. Fletcher said. "It was very awkward. There was no one (at the SBA) to talk to."

SBA loan volume in Michigan this fiscal year is down about one third from fiscal year 1995, partly because of a sluggish economy, higher loan service fees, and competition from other lending programs. But Richard Temkin, deputy director of the Detroit SBA office, said the shutdown intensified the drop-off.

"When there's a cutoff in service, it's not surprising that there's some kind of impact on the market," Mr. Temkin said.

But Mr. Temkin was confident that SBA loan volume would rebound. "As people realize that this was a one-time, unique situation, and the program is operational through the end of the fiscal year, the impact (of the shutdown) will diminish," Mr. Temkin said. "People will kind of forget about it."

But other bankers who rely on SBA credit are more concerned with the here and now.

"If there was another shutdown, or a slowdown in funding, it would have a drastic effect on the local small business community," said Jack Goldstein, executive vice president of First Bank of Frederick in Maryland.

SBA loans make up 9% of the bank's $28 million commercial business portfolio, and the bank expects to make $7 million of these loans in 1995.

"We're a very small bank, and losing the SBA (during a shutdown) reduces our ability to fund small businesses in our county," Mr. Goldstein said.

Mr. Duchemin writes for Medill News Service.

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