Two Year-Old Zero Subsidy Has Not Slowed 7(a) Lending, SBA Assures
WASHINGTON -- Lender participation in the Small Business Administration's popular 7(a) lending program has not decreased as the result of transitioning to a zero subsidy, the agency recently said.
From fiscal year 2005-2006, the first two years of the zero subsidy, 7(a) loan approvals were at 95,900 in FY 2005 and 97,290 in FY 2006, according to SBA. Those numbers are higher than approvals for periods between 2000 and 2004, with the average loan approval volume at 57,362 loans and 81,333 in fiscal year 2004 alone. Going back even further, the agency said from 1990 through 1999, the average loan approval volume was 50,181 with the highest level recorded during that time in 1995 at 55,597 loans.
The SBA also reiterated that 7(a) program fees "are exactly the same as they have been for 20 of the past 22 years." After the Sept. 11 attacks, Congress temporarily reduced some fees including the fee on loans under $150,000 reduced from 2% of the guaranteed amount to 1% and the fee on loans between $150,000 and $700,000 reduced from 3% of the guaranteed amount to 2.5%, the agency said.
The vast majority of 7(a) loans--81% in 2006--pay the lowest guaranty fee, at 2% of the guaranteed amount, according to SBA. The fee level for those loans has been set at 2% for the past 22 years, except for 2003 and 2004 when Congress temporarily reduced it to 1%, the agency said.
"Past experience has shown that subsidies limit access to SBA loans," the agency pointed out. "SBA must temporarily suspend the program when program demand exceeds the subsidy availability. SBA may also have to temporarily suspend the program when Congress fails to pass a budget on time. We are concerned that frequent interruptions will deter many banks from participating in a subsidized program, resulting in many borrowers being unable to get loans when they need them."
CUNA, NAFCU and others have previously expressed concern that if 7(a) program fees go up, it would discourage credit unions from becoming lenders or abandon the program.