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
November 10, 2004

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

Small Business Loans Continue to Freefall
7(a) loans decline by 40 percent since September; lowest amounts in months

WASHINGTON - Today Congresswoman Nydia Velázquez, Ranking Democrat on the House Small Business Committee, highlighted the need to reduce small businesses' costs for using the 7(a) loan program when Congress reconvenes next week for a lame duck session. Despite opposing claims, new numbers made available to the committee by the Small Business Administration (SBA) continue to indicate that demand for 7(a) loans has dropped due to the fee increase implemented on October 1 - for the first week of November, the program has averaged only $40 million per day in small business loans, a drop of 40 percent since September.

These amounts are the lowest since March and April of this year when the 7(a) program was operating under severe restrictions, including a cap on the size of the loans. This recent decline is significant when compared to earlier months' data, as daily volume had averaged over $60 million per day since May, after program restrictions were lifted. If the program were to operate at only $40 million per day as it is now for the remainder of the year, the 7(a) program would make only $10.5 billion in loans for the year, a drop of $2 billion from the anticipated volume of $12.5 billion.

"As a result of these fee increases, the program has been put out of reach for many small businesses," Congresswoman Velázquez said. "The bottom line here is that when you raise the price of capital, as SBA did for small businesses, demand for capital lessens. How could small firms not feel the burden of an additional tax? By imposing this additional fee on borrowers and lenders, it is now only more difficult for small businesses - the main job creators - to access affordable capital."

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 month of October, the first full month lenders and borrowers felt the impact of SBA's higher fees, daily volume averaged only $51 million - a decline of 25 percent compared to September's daily average.

The substantial drop is due to the fact that Congressional Republican leadership, under orders from the Bush administration, allowed measures that would have prevented the fee increase on the 7(a) program to be blocked. 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.

"This sharp decline in demand is due to the Bush administration's new policy to charge our nation's small business owners higher fees to use the program," said Congresswoman Velázquez. "During a time when the U.S. economy is attempting to regain its full strength, the last thing we should be doing is imposing an additional tax on our nation's main job creators - small business."

When Congress reconvenes next week, Congresswoman Velázquez plans to work with her Congressional colleagues to reverse the fee increase and restore the 7(a) program as an affordable financing option for our nation's small businesses.

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