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House backs lower fees on SBA 7(a) loans.

Over the objections of the Bush administration, the House has voted to restore the federal subsidy for SBA's flagship 7(a) loan program, opening the way for reduced fees for borrowers and lenders.

The amendment to the Science, State, Justice and Commerce Appropriations bill passed June 14 by 234 to 189. It adds $79 million to SBA's 2006 budget to cover the subsidy.

Last year Congress eliminated the subsidy, increasing fees and making the loan program self-sustaining for the first time. House Small Business Committee Chairman Donald Manzullo (R-IL) fought to keep the subsidy a year ago, but changed his mind this time.

"I said, what kind of a message does this send?" he recalled during House debate. "There is no legal or constitutional right to have loans subsidized by the taxpayers of this country for people to get involved in businesses. And, in fact, that sends the wrong messages. People getting involved in business should realize that it is a free enterprise system that works."

But the committee's ranking Democrat, Nydia Velazquez (NY), won support from members of both parties for her amendment to restore the subsidy.

Since the fees increased, she told the House, "the cost of the 7(a) program on small business has doubled, translating into an additional $1,500 to $3,000 in upfront costs."

In a letter to House members, SBA Administrator Hector Barreto said the number of 7(a) loans guaranteed so far this year has grown by 24%, proof that the fees are not driving borrowers away.

But Velazquez argued that the average size of loans has shrunk: "Since the fee increase, the total dollars going into the economy has dropped, small businesses are receiving less capital, and the number of active lenders making a loan has declined by 50%."

The appropriations bill now goes on to the Senate.
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Publication:Set-Aside Alert
Date:Jun 24, 2005
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