Stopgap Spending Measure Would Boost Funding for SBA

The House of Representatives has voted to increase the federal government's funding for the Small Business Administration to help cover rising levels of loan defaults.

Under a stopgap spending measure passed last week to keep the government running through March, the House agreed to raise the SBA's federal subsidy to $333 million, roughly $123 million more than it appropriated in the current fiscal year, which ends Sept. 30.

The legislation aims to avoid a budget showdown during the fall election campaign. The Senate is expected to vote on the bill Wednesday.

The increase in federal funding for the SBA is not a result of higher loan demand, but instead reflects the higher cost of guaranteeing loans by banks and credit unions to eligible small businesses in both the SBA's 7(a) and 504 loan programs. Agency officials have said that the SBA has seen an increase in defaults recently as collateral values have declined. Most of the problem loans were made between 2005 and 2008,

"Most notably, the legacy portfolio includes loans made before the financial crisis and the real estate bubble, giving them higher risk characteristics," SBA administrator Karen Mills told the House Small Business Committee in June.

Most U.S. banks participate in the loan programs, which assist eligible small businesses with financing that enables them to expand or modernize. The SBA backed a record $30 billion in small business loans in fiscal year 2011, though volume is expected to decline in this fiscal year.