News From the
Committee on Small Business
Nydia M. Velázquez, Ranking Democratic Member

For Immediate Release
May 24, 2006

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

Higher Fees for Small Businesses Drive Lending Down
Increased costs result in drop in loans to small business communities nationwide

WASHINGTON - Small businesses across the country are receiving less capital today through the Small Business Administration's (SBA) 7(a) loan program as compared to last year at this time as a result of higher fees that have been placed on the initiative. Based on the lending figures from SBA, entrepreneurs received $160 million less - and 1,000 fewer loans - through the first half of FY 2006 when compared to the same time the previous year. Over the past two years, the fees on lenders have increased by 110 percent, while the costs for small businesses have doubled. For the largest loans, entrepreneurs are now paying over $50,000 at closing due to the increased fees. In fact, the last quarter before the fee increases took effect, the program did nearly $4 billion in one quarter - today it is doing $400 million less - showing that the rising costs are resulting in less capital for this nation's entrepreneurs.

"At a time when this nation's small businesses are struggling with skyrocketing energy and healthcare costs - the last barrier they should face is a rising cost of capital too," Congresswoman Nydia M. Velázquez, Ranking Democrat on the House Small Business Committee, said. "Unfortunately, as the latest loan numbers demonstrate, these costs are limiting access to capital for this nation's entrepreneurs."

Small businesses in rural areas were hit particularly hard this past quarter - receiving $300 million less in lending and 1400 fewer loans. Compounding the difficulties facing rural small businesses is the closure of vital lending initiatives such as SBA's LowDoc lending program, which serves rural areas and was terminated as of October 1, 2005. The program, which was created over a decade ago, allowed banks to use their own forms and documentation to meet the requirements for SBA loans. This was particularly important for local community banks in rural areas which only make a small amount of loans each month. The elimination of critical initiatives such as this - combined with the fee increases on the program - are starting to have ripple effects for small businesses across the nation.

"By putting program changes ahead of what small businesses need, the Bush administration has essentially cut lending to rural small businesses," Congresswoman Velázquez said.

Women business owners and veteran business owners were also negatively impacted by the fees in the past quarter. Women entrepreneurs - an increasingly growing sector within the small business community - received $100 million less in capital and 2,000 fewer loans, showing that the increased fees are simply preventing these business owners from accessing the financing they need. As more and more veterans return from Iraq wishing to start a business, they are also receiving less capital through SBA. Veteran business owners received nearly $100 million less in loans.

In addition, recent lending figures show that the agency continues to shift loans out of the mainstream lending program and into the SBA Express program, which uses lower guarantees and offers less support for businesses that may not qualify for a conventional loan - contrary to the mission of the program. While higher guarantee lending has declined, SBA Express lending has increased. In fact, SBA Express accounted for 68 percent of the 7(a) loans this year - up from 54 percent in 2004, illustrating that traditional 7(a) lending continues to dwindle.

"Small businesses are feeling the effects of these fee increases - particularly rural businesses, veteran owned business and women entrepreneurs," Congresswoman Velázquez said. "We simply cannot allow these entrepreneurs to be left behind."

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