Legislation could increase government-backed loans - Congress considering bills that would allow the Small Business Administration to make more loans - Brief Article

Nation's Business, Sept, 1995 by Elizabeth Warner

The Small Business Administration would be able to increase the number of government-backed loans for small-business borrowers under bills approved recently by the House and Senate small-business committees. The proposed changes in the SBA's 7(a) loan-guarantee program would increase the number of guaranteed loans by lowering the percentage of each loan the agency backs. The bills also would charge borrowers a slightly higher fee for each loan.

The bills were introduced in hopes that swift changes in the 7(a) program would replenish the SBA's pool of funds for this year. As of June, nearly 42,000 loans totaling $6.5 billion had been guaranteed by the SBA under the program, and the SBA projects that without the changes the 7(a) program will run out of money by September. Altogether, 36,490 loans totaling $8.2 billion were guaranteed under the program in 1994.

Currently, 70 to 90 percent of a loan is guaranteed, depending on its size. The House and Senate bills would provide for two guarantee rates: 80 percent for loans under $100,000--called "low-doc" loans because they require less documentation from the prospective borrower than larger loans do--and 75 percent for loans over $100,000.

It is uncertain when the bills will go before the full House and Senate.