SBA limit on loans reduced to $500,000

By Joyce M. Rosenberg
Associated Press

NEW YORK — Company owners applying for what are known as 7a loans guaranteed by the Small Business Administration will find there's a new borrowing limit as of Oct. 1 — $500,000, down from the $2 million previously allowed. But the credit crunch is likely to be temporary, and would-be borrowers might find other SBA loans are available.

The drop in the ceiling on the agency's flagship 7a Loan Guaranty Program results from the fact that the SBA's budget probably won't be approved by Congress before the start of the federal government's fiscal year on Oct. 1, according to Mike Stamler, an SBA spokesman.

As in past years, the SBA and other government agencies are expected to keep running as Congress passes what are called funding resolutions. But the SBA has also had a drop in revenue from fees in its loan program, and that is what has led to the decision to lower the guaranteed loan amounts, Stamler said.

"We will revisit the loan size limits when the budget is adopted," Stamler said. However, it's not known when Congress will approve a budget; it might not be for several months.

The 7a program is the SBA's primary vehicle for helping small businesses gain financing. Under the program, companies that cannot otherwise get loans are able to borrow from financial institutions because the government guarantees the loans. Details of this and other SBA loan programs can be found at www.sba.gov/financing/.

Stamler said most small businesses likely to borrow under the 7a program probably won't find themselves squeezed by the new limit. And some might qualify for larger loans under other SBA programs.

"Eighty-seven percent of the (7a) loans in 2002 have been under $500,000," Stamler said. "The average loan is $233,000."

Meanwhile, he noted, the SBA will continue to make loans over $500,000 through the Supplementary Terrorist Activity Relief program. This loan program, known as STAR, was set up to help companies that could not qualify for economic injury disaster loans following the 9/11 attacks; it is aimed at companies indirectly affected by the attacks.

Some companies that need money to buy or renovate fixed assets — which can include real estate and machinery — also have a more generous avenue, the SBA's Certified Development Company, or 504, loan program, Stamler said.

"We think the vast majority of our potential borrowers, we'll be able to continue to serve them," he said.

With the country in the midst of hurricane season, business owners should also be aware of economic injury disaster loans, which are also administered separately from the 7a loans. But these loans are only available to companies unable to carry out normal operations because of a disaster.

Businesses seeking SBA loans should apply through a bank or other lender. The SBA does not make the loans itself. But chances are that business owners will want to check first with a local SBA office to determine what kind of loans are available to them, and then find out the names of preferred lenders in their areas.