Discovery of Goof Allows SBA to Lift Loan Limits

The Small Business Administration on Thursday removed limits on its largest loan-guarantee program after finding an accounting error that will allow an additional $2.5 billion in loans this year.

Last month small businesses seeking government-backed loans under the SBA’s popular 7(a) program were limited to less than $500,000 each, down from $750,000. In addition, a nationwide lending limit of $80 million was imposed.

The limits were put in place to slow down lending after it appeared loan funds would run out before the end of the fiscal year, Sept. 30. But the error, discovered by the General Accounting Office, means that the program will be able to continue normal operations without the limits.

“This is a fitting way to close out National Small Business Week,” said Rep. Jim Talent (R-Mo.), chairman of the House Committee on Small Business in Washington.

Talent called the GAO’s discovery “a Christmas present in June for many small businesses.”

The congressman also lifted a requirement that would have made the SBA wait 15 days before removing the previous loan limits.

Government officials said the error was made by the Office of Management and Budget in a complex calculation involving loan subsidy rates. The subsidy rates determine how much money the government must set aside to guarantee SBA loans. Basically, the government goofed by assuming that 100% of the loan dollars would have to be backed instead of 76%, said Jeanne Saddler, an SBA spokeswoman.

The error occurred during the preparation of the SBA budget for fiscal 1997 and was not detected in subsequent reviews by the SBA, the Office of Management and Budget and the Congressional Budget Office. The error did not occur in previous years, Saddler said.

Correction of the formula means that the $198 million set aside to guarantee the 7(a) program will cover $10.3 billion worth of loans, not $7.8 billion as previously estimated.