Fee hikes aren't hurting business loans
A Helping Hand
Loans from the U.S. Small Business Administration (SBA) became more expensive recently. Effective October 1, 2004, the agency increased fees for its flagship 7(a) loan program, a popular source of long-term loans for small businesses that can't obtain conventional financing.
Fees for loans of $150,000 or less increased from 1 to 2 percent; and fees for loans of more than $150,000 to $700,000 increased from 2.5 to 3 percent.
SBA officials said the increase returns fees to pre-September 11, 2001, levels. Congress lowered 7(a) loan fees after September 11, 2001, as part of economic stimulus legislation, said Mike Stamler, an SBA spokesman in Washington, D.C. The 7(a) loan is the SBA's most popular loan program for startup and existing small businesses.
Two cups at Starbucks
Critics say the higher fees make the loans too expensive for small businesses.
"These higher costs, which are nothing more than a new tax, will put small business loans out of reach for many of our nation's entrepreneurs," said Rep. Nydia M. Velazquez of New York, the ranking Democrat on the House Small Business Committee, in a statement.
But Stamler and other SBA officials said the fees are modest. The fee for the average 7(a) loan of $161,000, over 10 years at 6 percent interest, will cost the borrower another $6.73 per month, Stamler said.
"That's less than two cups of coffee at Starbucks," Stamler said. "I don't think that any small business that has an opportunity to expand or any entrepreneur that has an opportunity to start a business is going to give up that opportunity over $6.73 a month."
Virginia Belmore, owner and president of Green Planet Inc. in Royse City, Texas, obtained an SBA loan for $235,000 in 1999 to buy property and an office for her company, which transports and disposes of hazardous wastes from dry cleaners, automobile body shops and other clients. Belmore had excellent credit, but she said several banks declined to give her a loan because her business was less than two years old. She said a higher fee on her loan would not have deterred her from applying to the SBA.
"If you're serious about having a small business and making it a success, you're going to pay what it takes to get it going," Belmore said.
Loans on the rise
The SBA is awarding more 7(a) loans, both nationwide and in Texas. In fiscal 2003, the SBA approved 59,972 loans nationwide worth $9.8 billion. In fiscal 2004, the number of loans jumped 25 percent, with SBA approving 74,825 loans totaling $12.5 billion, Stamler said.
In fiscal 2004, Texas small businesses received 6,460 7(a) loans worth $1.2 billion, up from fiscal 2001, when the SBA approved 3,250 7(a) loans for Texas businesses worth $1.03 billion.
San Francisco-based Wells Fargo bank ranks second nationwide in the total dollar volume of SBA loans it approves annually and does not anticipate a drop in applications due to the fee increase. In fiscal 2004 in Texas, Wells Fargo approved 484 loans worth $85 million, up from 230 loans worth $55 million for fiscal 2000, said Thomas W. Burke, vice president and SBA national program director for Wells Fargo.
"The number of applicants continues to increase, which indicates that borrowers recognize that SBA loans are still a viable financing alternative even with the fee increase," Burke said.