Reduced small-business-loan cap adversely impacts hoteliers

Hotel & Motel Management, April 5, 2004 by Hitesh Bhakta

The Asian American Hotel Owners Assn. was alarmed to learn that the Small Business Administration cut the maximum allowable 7(a) loan guarantee from $2 million to $750,000 effective Jan. 8. As a major user of SBA funding for $2-million projects, AAHOA members believe this drastic cut is unduly harsh on the U.S. hotel industry.

We recognize the lower cap is a direct result of the program's success because the 7(a) loan was popular during fiscal year 2003 and exceeded its Congressional funding. However, this cut is severe and potentially damaging to the tourism industry--the third-largest retail industry in the United States.

Following 9/11, the hospitality industry took a huge hit. AAHOA members, who create more than 1 million jobs and own $40 billion of property assets, have begun to regain their financial footing. This type of cap could prove detrimental to their continued growth and success. The role of small businesses in the current economic recovery is essential. And, as the tourism industry pays $96 billion in federal, state and local taxes annually, the changes also will have an adverse impact on the national economy.

The SBA's actions created a firestorm of criticism from many sides of the political spectrum. There were many instances of individual hardship in which business plans based on existing SBA programs were abruptly abandoned. The lending community was placed in uncertainty. Recognizing that an underlying problem was inadequate funding, many commentators observed that the reductions and cutbacks in SBA programs flew directly in the face of the need to create new jobs in the current economic recovery. At the same time, the reduction eliminated many of the business expansions with the greatest potential for creating new jobs.

Not surprisingly, the SBA has responded, first by reopening the program in mid-January on a limited basis, and then by announcing plans to back legislation to expand the program. The expansion would be made possible by a reduction in the percentage of loans guaranteed and by other changes in existing practices. There also would be a restoration of the more realistic $2-million ceiling for 7(a) loan guarantees.

On Feb. 25, the Senate Small Business and Entrepreneurship Committee held a roundtable discussion at which key Senate staff members from both political parties questioned officials of the SBA about the new proposals and other ways to improve the SBA's operations. Those invited to appear included Fred Schwartz, president of AAHOA, who told the committee about the importance of the Section 7(a) loan program to the hospitality industry.

Guaranteed small-business loans play an important role in stimulating the economy and are greatly needed by independent hoteliers. And in an effort to further help ensure sufficient funding for this essential program, AAHOA's 8,400-plus members are contacting their representatives and the House and Senate Appropriation Committee to urge SBA funding be increased for 2004 and 2005.

hmm@advanstar.com

Hitesh Bhakta, the 2003 chairman of the Asian American Hotel Owners Association, practices law as a real-estate and business litigation attorney in Southern California. A second-generation, multiproperty hotelier, Bhakta owns and operates a number of hotels in California and Texas with his family.