Key SBA lending program suspended by agency administrator

Friday, Jan. 9, 2004 | 11:24 a.m.

SUN STAFF AND WIRE REPORTS

Entrepreneurs looking for government assistance could be in temporary trouble, as the Small Business Administration told lenders Wednesday that it will no longer guarantee loans under the Section 7(a) program.

Citing an "unprecedented demand" for the loans, SBA Administrator Hector V. Barreto told lenders the agency will no longer approve requests, effective immediately. This puts an indefinite moratorium on millions of dollars in guaranteed loans, a key tool in business development granted to thousands of businesses annually. Though banking experts expect the program's funds to be restored as the SBA arranges alternative funding with Congress, the interruption could prove difficult for companies in immediate need.

"In the short term, it'll inconvenience customers," said Tom Burke, a vice president for SBA lending with Wells Fargo in Los Angeles, who approved 331 loans for $36.5 million in Los Angeles last year. "Banks have had this credit approved, now customers have to sit and wait. If there's some urgency to their situation, it could become a problem."

An SBA spokesman did not return calls seeking comment, but industry experts blamed the interruption on the program's own success. With an improving economy, more companies looked to the program, which had guaranteed more than $1 million in loans, as they expanded. Burke said the SBA had been approving more than $1 billion a month, far more than anticipated.

With the agency's fiscal 2004 budget still not approved, administrators had been operating on leftover money from last year and stopgap funds. Trying to keep up with requests without completely depleting the budget, the SBA capped loans at $750,000, but even this proved insufficient. Though the agency pledged to resume the program after working with Congress to restore funding, the timeline remains murky.

Rep. Shelley Berkley, D-Nev., said in a statement that the suspension of the loan program was "caused by the failure of Republican leaders in Congress" to pass a spending measure last year to further fund the SBA, which has already allocated all existing funds for the 7(a) loan program.

"Small businesses create jobs and drive economic growth, but they can't operate without access to funding," Berkley said.

"It is inconceivable to me that the White House and the SBA would be taking money away that could be used to help minority and women-owned businesses flourish and grow," Berkley said. "I will be working with those in Congress who truly support America's small business owners to increase funding for SBA loan programs in the future and to examine options for addressing the potentially harmful $750,000 cap that has now been imposed."

There are some options available to help lenders and business through this period.

"Unfortunately, it puts a crimp in lending," said Vladimir Victorio, director of lending for the Valley Economic Development Center in Los Angeles. "We still have resources from the state, which still provides guaranteed loans, so we'll encourage banks to look at that."

The VEDC relies on the SBA for roughly a third of its loans annually. Victorio thinks the Van Nuys-based nonprofit organization can make do with other loan programs until 7(a) guarantees are available, but said the cut would deprive him of a "very valuable tool."

Though frustrated in the short term, lending institutions pledged to seek out alternative funds and encouraged clients to continue to sign up for the 7(a) funds in the hope that the program will quickly return.

"Small businesses are the backbone of the country's economy and lots of owners rely on this for working capital," said Shahe Mazbanian, an assistant vice president for Bank of America's Pasadena office. "All those transactions will be halted until further notice. In the meantime, I'm telling my clients let's get this all ready and let's move forward, because it takes a while to get an SBA package together. When the program gets moving, they'll be the first ones in the door."