There are many words to describe the reactions of small business owners to the temporary shutdown of the Small Business Administration’s popular 7(a) loan program in January. Only a few of them are printable. It was the second bit of bad news they’d received over a short period of time; on Dec. 23, the SBA announced a loan cap of $750,000, down from $2 million. As a result, pending applications were returned to small business owners across the country.
Following criticism from Capitol Hill, the White House Office of Management and Budget gave the agency $470 million to get the 7(a) program up and running again. Democrats on both the House and Senate small business committees are demanding an investigation of the shutdown.
The SBA blames Congress for its money problems. “It has not passed our fiscal year 2004 appropriations bill, so we have been on a series of continuing resolutions since our new fiscal year started in October 2003,” says agency spokeswoman Sue Hensley. But according to legislators such as Rep. Nydia VelÃ¡zquez (D-N.Y.), who chairs the House Small Business Committee, and Rep. Denise Majette (D-Ga.), the Bush administration is at fault. They believe that both the loan cap and the program suspension could have been avoided had the administration requested adequate program levels and budget authority in its fiscal years 2003 and 2004 budgets.
“In cutting off funding to our greatest job creators, President Bush has made clear his lack of commitment to small and minority-owned businesses,” says presidential candidate Sen. John Kerry (D-Mass.), ranking Democrat on the Senate Committee on Small Business and Entrepreneurship. “And who pays the highest price for this mismanagement? The businesses [that] have the least access to capital — minority-owned businesses — and the communities they serve.”
One entrepreneur who may pay dearly is David Williams, owner of No Rulez Laundry in Lanham, Maryland, who says he is not sure he would be in business today were it not for the $90,000 startup capital he borrowed from the SBA three years ago. Although he recently received a loan approval for $913,000, he may have to put plans for expansion on hold indefinitely. The new loan cap prohibits Williams from borrowing the approved amount, and he may also lose a great deal of money in nonrefundable down payments that he has already made. “Without the second loan, I’ll probably never expand,” he says.
President Bush has declared his commitment to small business. But allocating $1.5 billion to promote marriage and $12 billion over five years for space exploration makes that commitment questionable, when there is not enough money to help those who create the most jobs.
“When the administration submitted its fiscal year 2004 budget, it requested $4 billion in lending authority, which is roughly $7 billion below what the program has traditionally run,” says James Ballentine, director of community development at the American Bankers Association. “If that is a demonstration of commitment, it is far short of what is needed to do the job.”