Small firms grapple with loan cap.

• Author: Taylor, Mike
• Position: Small Biz

CALL IT A BLOW TO SMALL BUSINESS, A TEMPORARY IMPOSITION, OR A SIGN OF TOUGH ECONOMIC TIMES.

Beginning Oct. 1, the U.S. Small Business Administration implemented a $500,000 limit on most of the loans it guarantees -- down from its $2 million limit last year.

The SBA says the measure will leave the vast majority of its customers unaffected, but some local lenders say it will impose hardship on the very loan customers who help drive the economy -- manufacturers and other significant employers.

"This is not a step we take lightly, but after weighing the facts, this is the best solution to the strict limits placed on our total loan authority by the continuing resolution," SBA Administrator Hector Barreto said in a statement. "Fully 87 percent of 7(a) loans made to small business in 2002 are under $500,000." A continuing resolution is a short-term legislative device that allows federal agencies to continue operating until their budgets are adopted.

Under the current resolution, the SBA is limited to making a total number of loans that is less than $16 million per day, compared with the 2002 average of $37.4 million per day. The average loan during the year was $233,000.

John McCormick, vice president and regional manager of Comerica Bank in Denver, says that 70 percent of the loans his bank makes through its SBA division are 7(a) loans, the SBA's primary financial assistance program.

"It's affected us as far as looking at any kind of real estate projects, more than likely," McCormick says. "When you look at lending $500,000 ... you don't buy a lot for $500,000. You can hardly even buy a home anymore for that. So we're looking at the small end of the customer requirements."

There are four types of SBA loan and equity investment programs available to borrowers: the 7(a) Loan Guaranty Program, the 7(m) MicroLoan Program, the 504 Certified Development Company Loan Program, and the Small Business Investment Company Program. Of the four, the 7(a) Loan Guaranty Program is the SBA's primary business-loan program. With it, lenders structure loans to the SBA's requirements in return for a guaranty from the agency on a portion of the loan.

"From our perspective, we would love to have the limit stay where it was, obviously," says Joe Wolf, region president for Vectra Bank Colorado. "But given the fact that it's gone down, we think it will have a very limited impact on us. The reason for that is that most of the larger SBA loans we do involve real estate and...