The U.S. Small Business Administration’s widely used loan guarantee program has hit its $18.75 billion cap this fiscal year, delaying startups seeking funds through the program until Congress authorizes more funding or until the next fiscal year starts on Oct. 1.
The SBA called the demand for financing “unprecedented.”
The delay affects the SBA’s 7(a) loan program and does not include SBA programs such as the 504 Loan, Microloan, Intermediary Lending Pilot and Disaster Loan programs.
The 7(a) program has become a popular option for small companies that don’t qualify for traditional financing because of insufficient credit or collateral.
Applicants awaiting loan approvals must also wait until the new fiscal year unless Congress raises the program’s $18.75 billion ceiling before it recesses in August.
Sen. David Vitter, R-La., chairman of the Small Business and Entrepreneurship Committee, has introduced a bill in the Senate. Rep. Nydia Velazquez, D-N.Y., of the House Small Business Committee, and committee chairman Rep. Steve Chabot, R-Ohio, have introduced bills in the House.
In the meantime, banks are processing applications and submitting them to the SBA, said Sheila Mathews, president and CEO of Four Corners Community Bank. The SBA will hold on to the applications until approvals resume.
“They would go in a queue, and if Congress meets and gives a temporary lift to the limit, then those in queue would be funded on a first-come, first-served basis,” said Mathews. “It’s a wait-and-see game depending on what Congress does. We’ll see if they raise the limits or stack everyone up and wait for the next fiscal year to start. ...The strong demand is an indication of an improved economy, and an improved area of industry where a lot of jobs are created from.”
SBA has approved 45,000 loans this year, totaling more than $16.5 billion, a 25 percent increase over the like period last year, according to the agency.