News From Congresswoman
Nydia M. Velázquez
Representing New York's 12th Congressional District - Brooklyn, Manhattan, Queens
Ranking Democratic Member, House Small Business Committee

For Immediate Release
October 29, 2004

CONTACT: Kate Davis, Allyson Ivins, (202) 225-4038

Small Business Loans in Freefall Due to Fee Increase
7(a) loans decline by 80 percent since early October

WASHINGTON - Small businesses across the country are beginning to feel the effect of the drastic increases in the cost to use the Small Business Administration's (SBA) flagship 7(a) lending program. Congresswoman Nydia Velázquez, Ranking Democrat on the House Small Business Committee highlighted that as a result of Congressional Republicans' inaction to fix the problem, SBA data now confirms that daily average loan volume has plunged 80 percent since early October (from a high of $241 million on October 4 to $49.3 million).

In September, prior to SBA's fee increase, daily volume for the 7(a) loan program averaged $69.1 million per day. When compared to the week of October 11, the first week after lenders and borrowers felt the full impact of SBA's higher fees, daily volume averaged only $48.7 million - a decline of 30 percent compared to September's daily average. These numbers are indicative of the effect higher fees are having on small businesses and lenders, and Congresswoman Velázquez said that, "this reduces the options entrepreneurs have to secure affordable financing and will cause many to forgo plans for business expansion and for hiring new employees."

Congresswoman Velázquez blamed this sharp decline in SBA lending on the Bush administration's new policy to charge small business owners higher fees to use the program. "When you raise the price of capital, as President Bush and Congressional Republicans did for small businesses, demand for capital lessens - and this is exactly what is happening now," Congresswoman Velázquez said.

The drop is due to the fact that Congressional Republicans, under orders from the Bush administration, allowed key portions of the 7(a) program's funding mechanism to lapse. Those failures to act have resulted in increased upfront fees for small businesses, which in many cases have doubled, resulting in an approximate $1,500 to $3,000 additional cost - as well as contributing to higher loan payments. Congresswoman Velázquez highlighted that "the dramatic decline in lending that we are now seeing only confirms what Democrats predicted - higher fees only serve to hurt small firms. This causes me to call into question Republicans' true support for America's business owners."

The increased costs are the most recent blows by Republicans to undermine the country's largest small business lending program. This year began with the administration shutting down the program because they had requested insufficient funds. The program was reopened, but with severe limitations on loan size. Republicans stalled in removing the caps for nearly three months. Only after Democrats rallied support did Congress act to pass a short-term fix to reopen the program. During July, Congressional Republican leaders led efforts opposing the funding of the 7(a) program, and instead advocated for an increase in cost on small business owners that receive loans. These latest moves, in addition to higher costs, also blocked the ability of lenders to make use of a $1.5 million loan guarantee, and to apply SBA loans as a part of a larger financing package. Congresswoman Velázquez called the recent sharp decline in 7(a) lending, "a result of the Bush administration's failed small businesses policies" and said that she hoped that the release of these recent dire statistics "would cause Republican's to finally reverse their efforts to dismantle this important program."

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