NCPA - National Center for Policy Analysis

Piling On Debt At The SBA

September 24, 1996

The Small Business Administration's loan-guarantee programs are once again facing heavy losses.

  • The default rate on the main guarantee program, called 7(a) is expected to be 17 percent in the fiscal year ending September 30, 1997, according to an SBA review.
  • This program is expected to back $8 billion in lending next year, as part of the SBA's overall $10 billion loan guarantee programs.
  • Estimated program losses over the past four years exceeded the reserves established to cover them -- which triggered an automatic congressional appropriation of more than $250 million earlier this year.
  • Losses in fiscal 1997 are expected to require an additional appropriation of more than $84 million and lead to higher fees for lenders and borrowers.

One study found that SBA takes an average of 18 months to foreclose on borrowers who have stopped repaying their loans.

A recent notice to bankers served by the SBA's Los Angeles office said, "All lenders are reminded that meeting minority lending goals is one of the several important factors" in retaining certification as an SBA lender. Critics, however, note that minority lending is not a requirement to participate in the 7(a) program.

Source: Michael Selz, "SBA Load-Guarantee Programs Again Face Big Losses," Wall Street Journal, September 24, 1996.


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