The U.S. Small Business Administration is thinking smaller than ever.
The government agency is looking to back even smaller loans, hoping to cut the average size of the loans backed by its flagship 7(a) loan guarantee program to $175,000 from $244,000.
“Our aim is to increase the proportion of smaller loans, the type of loans often the most difficult for small businesses to receive,” said Hector Barreto, the agency’s administrator, in testimony to Congressional lawmakers.
The shift outlined recently by Barreto, who took over the top job in July, has largely been overshadowed by news that the vital loan guarantee program, which backed $9.5 billion in loans last fiscal year, will have just $4.85 billion in 2003 under current proposals.
In his recent testimony to the House Small Business Committee, Barreto said demand for the guarantees has slowed considerably as the economy has run aground. He plans to persuade Congress to let the agency keep excess funds set aside for the current 2002 campaign, which would give the SBA enough cash to back another $2 billion in loans in 2003. This would give the agency close to $7 billion, which would match its forecast level of demand for the program next year.
At the same time as the loan guarantee cuts, he wants the SBA’s spending on administration to rise dramatically. Proposals are for a 27 percent rise in salaries and expenses, to $218 million by 2003.
Recently, the agency has cut back on monitoring loan performance and raised fees to lenders to help pay its way.
Barreto, a former chairman of the Latin Business Association, has also shown he’s not afraid to upset some of his core supporters.
He wants to bring “parity” to two competing SBA programs; the Hubzone community development program and the 8(a) program, which gives minorities preferred access to federal contracts.
The Congressional Hispanic Caucus called the move a “bald attempt by the Bush administration to erase the last affirmative action program protecting minorities in federal contracting.”
Cut rate: Just 35 percent of the owners of small firms think the Federal Reserve Board’s recent interest rate cuts have had a positive impact on their firms, while 55 percent think rate cuts have had no impact, according to a new survey.
And although the vast majority of small firms believe the sluggish economy will recover by the end of the year, just a fifth expect to hire new staff members this year, according to the newly released Small Business Owner Economic Outlook Survey produced for Partner America, a partnership of the U.S. Conference of Mayors–which represents cities with populations of 30,000 or more–and American Management Services.
Some observers have said a reluctance to lend by banks may have offset some of the potential boost to the economy from the rate cuts.
