Small-firm loan program is depleted Businesses face wait of 5 months

April 28, 1993|By Los Angeles Times

WASHINGTON -- Small businesses, already facing a credit crunch, suffered a big setback yesterday as the Small Business Administration's loan program ran out of money. It could be five months before the program receives more money.

SBA's funding shortfall could mean that thousands of entrepreneurs will be unable to obtain government-guaranteed loans until Oct.

1, the start of the new federal fiscal year. SBA-backed loans have been the only source of long-term financing for many small businesses.

Not all the news was bad for small businesses. The Securities and Exchange Commission decided yesterday to make it easier for small companies to raise money in the stock market.

The SEC decision -- to ease the regulatory burden on public stock offerings of less than $10 million -- will make it cheaper for small companies to issue stock.

Both developments underscored the difficulties that small businesses face in raising money amid a credit crunch due partly to stricter banking regulations. Those regulations could become even tighter next month, when accounting rules are expected to be adopted to force banks and thrifts to set aside more money for projected losses on bad loans, further limiting their ability to finance small and medium-size businesses.

The tight credit has caused an avalanche of guaranteed-loan requests at the SBA that has depleted the agency's underwriting capacity. Demand for SBA-backed loans reached a record $5.6 billion in the 1992 fiscal year, an increase of more than 35 percent over fiscal 1991. About 22,400 entrepreneurs sought SBA loan guarantees. Each loan guarantee costs taxpayers about 5 cents per dollar of loan.

Congress declined last week to approve President Clinton's economic stimulus package, which contained $141 million for underwriting about $2.5 billion in small-business loans.

Congress, small-business groups and administration officials are seeking to sustain the program. But with Republicans arguing that more SBA funding will widen the federal budget deficit, it is unclear whether a compromise can be reached.

l "It is incomprehensible to me that our government can just turn itsback on American small business," said Anthony Wilkinson, president of the National Association of Government Guaranteed Lenders, a nonprofit group of banks and other institutions active in SBA lending programs. "The small-business community is going to find it extremely difficult to get the capital they need to continue creating jobs and generating tax revenue."

In past years, the SBA sometimes ran out of money with days left in the fiscal year, but the shortfall had little effect on borrowers.

This time, said an SBA spokesman, Michael Stamler, the SBA will be out of the guaranteed-loan business by today.

"The average 100 borrowers a day who apply for loans will be told, 'You just have to wait and see' " what action Congress takes to provide the SBA with funding, Mr. Stamler said.

The news was more upbeat for small companies hoping to raise money in the stock market. The new SEC rules would expand regulations intended to save small companies time and expense by letting them test whether their securities would be attractive to investors before applying for an offering.

Normally, companies must issue a detailed document called a prospectus that outlines the potential risks and benefits for investors. Under the new rules, small companies could use a simpler question-and-answer form and could sell up to $1 million of securities each year without having to register with the SEC or state regulators.

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