SBA wants to shift microloans to 7(a) loan program in 2005

Besides 7(a) and 504 loans, the U.S. Small Business Administration also supports a MicroLoan program, providing smaller loans (up to $35,000) to startup businesses. Under this program, the SBA makes funds available to nonprofit community based lenders, which, in turn, make loans to eligible borrowers. The average loan size for this program is about $10,500.

In 2005, the SBA wants to shut down the MicroLoan program and shift the smaller loans into the 7(a) loan program. According to SBA spokesman Doug Heye, the shift is being made to become more efficient.

“We realized that we can make those same micro loans through the 7(a) program,” Heye said. “Last year, the 7(a) program made 23,000 loans under $35,000. Compare that to only 2,400 loans made through the MicroLoan program.”

In Colorado, the SBA MicroLoan Program has funded more than $6 million in loans to nearly 500 businesses since 1990, creating six jobs per loan on average, according to the Colorado Enterprise Fund, a nonprofit community lender based in Denver.

“This is a drop-in-the-bucket cut (of about $50 million a year) for the government, but it would decimate many small businesses,´ said Eric Holloway, with the Colorado Enterprise Fund.

Holloway and others believe that by shifting the micro loans into the larger 7(a) program, the smaller loans will receive less attention and consideration.

Executive Director of the Colorado Enterprise Fund, Ceyl Prinster said the SBA MicroLoan program fills an important niche, particularly in a down economy.

“Hundreds of startup and emerging businesses are unable to secure financing from a bank. Where else can they go? They turn to us for the business capital they need, and now that funding may disappear.”

Heye said there is still a lot of misinformation going around.

“They say we’re doing away with the MicroLoan program, but that’s not the case, we’re just shifting the smaller loans — where most of them already are — to the 7(a) program.”

But even bankers who don’t directly deal with the microloans said the shift might hurt the overall small business market.

“This is where some businesses get their start,´ said Andrew Spaulding, an SBA loan officer at Comerica Bank in Denver. Spaulding said he refers all his smaller dollar amount loans to the microlenders because they have a better expertise in dealing with start-up small businesses.

“It’s a critical starting point, and the entire SBA program won’t work as well without all its parts,” Spaulding said. “To have a one-size-fits-all program would not be beneficial to the process.”

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