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CONGRESS REVISES SBA LOAN GUARANTEE FORMULA TO MEET EXTRAORDINARY DEMAND FOR SMALL BUSINESS LOANS

 WASHINGTON, Aug. 7 /PRNewswire/ -- Approval this week by Congress of proposals to stretch Small Business Administration (SBA) loan funds will make more than $7.0 billion in guaranteed loans available to credit- starved small businesses in FY 1994, SBA Administrator Erskine Bowles said today.
 Bowles praised the passage of the authorization bill, which will lower the budget deficit and nourish the economic recovery by allowing SBA to make more 7(a) General Business Loans to more small businesses at a lower cost than ever before in FY 1994.
 "These changes will leverage a $155 million taxpayer investment into more than $7 billion in guaranteed loans, which will maintain or create more than 600,000 jobs over the next four years, which will generate more than $1.2 billion in new tax revenues for the government," Bowles said. "That's a good return on your investment in anybody's book."
 The savings will be accomplished, according to the authorization bill, by making four basic changes in the formula for calculating SBA guarantees and by increasing fees on sales by financial institutions of guaranteed loans in the secondary market.
 The four changes in the bill are:
 -- Reducing the percentage of the loan that can be guaranteed by SBA on loans by preferred lenders from 80 percent to 70 percent.
 -- Reducing the guarantee percentage on real estate loans over $155,000 with terms over 10 years from 85 percent to 75 percent.
 -- Imposing an annual fee of 0.4 percent of outstanding principal on all SBA loans sold on the secondary market.
 -- Allowing SBA to share excess premiums gained on lender sales of SBA-guaranteed loans in the secondary market. SBA would receive half of the portion of the sale price in excess of 110 percent of the balance of the guaranteed portion.
 "These initiatives do two things," Bowles said. "One, they attack the deficit and save the taxpayers a considerable number of dollars, which is something we are committed to doing. Two, they allow us to fund a program that is going to be in excess of $7 billion, and that is important in meeting the demand of the small business owners of this country."
 Bowles noted that while it is difficult to predict demand for SBA- guaranteed loans for FY 1994, demand has grown extraordinarily in the past two years. In FY 1991, SBA-guaranteed loans amounted to less than $4 billion. The amount grew to $5.6 billion in FY 1992 and could easily reach $6.8 billion in FY 1993.
 "Small business cannot grow and cannot create jobs without capital," Bowles said. "These changes will go a long way to meeting those needs."
 -0- 8/7/93
 /CONTACT: Mike Stamler of the U.S. Small Business Administration, 202-205-6740/


CO: Small Business Association ST: District of Columbia IN: SU:

LD -- NY001 -- 0528 08/07/93 08:00 EDT
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Publication:PR Newswire
Date:Aug 7, 1993
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