The Obama Administration seeks $818 billion for small-business programs, including the 7(a) program, in its 2012 budget that will begin in October 2011. This total is just over half of what it received for these programs in 2010, when the agency was flush with supplemental stimulus money to spur lending and borrowing. While this appears to be a “cut,” it would be the highest annual appropriation for the agency in nominal dollars since at least 2000.
For fiscal 2012 the administration is asking for a subsidy that would permit up to $16.5 billion in 7(a) lending. That is $1-billion less than what the SBA sought for fiscal 2011 and less than it loaned in calendar 2010, when extended Recovery Act provisions made 7(a) loans unusually attractive by raising the guarantee to 90% and eliminating fees. Demand for 7(a) loans has fallen sharply since those provisions expired at the end of calendar 2010, according to SBA Administrator Karen G. Mills, and while the agency expects an uptick, it doesn’t expect to have to turn borrowers away. (Even in pre-recession years, 7(a) lending did not top this ceiling.) But, she added, the SBA already charges borrowers and lenders the most it is allowed by law, so if Congress appropriates a smaller subsidy, the agency will be forced to guarantee still-fewer loans.
“The subsidy only lasts for so many loans, and that restricts our ability to meet market needs,” said Ms. Mills.
“While the proposed appropriation for the SBA appears to be a large reduction from 2010, the Jobs Act benefits are over and new loan production post-Jobs Act is way down,” notes Michael D. Sneden, Executive Vice President at ValueXpress. “One unknown though is the new higher loan limits; if a large number of higher balance loans are funded in 2011, we could see a moratorium on guarantees at the end of the fiscal year, which has happened in the past, but I do not foresee it happening is 2011.”