THE SBA WILL BE ABLE TO OFFER ONLY $4.5 BILLION in 7(a) guaranteed loans this year--half the $9.7 billion it was expecting to offer.

The shortfall is due to a recalculation in the subsidy rate, a figure that determines how much in loans the SBA can guarantee. The White House was forced to double the subsidy rate from 0.88 to 1.76 percent in January due to cuts in 7(a) fees imposed by Congress. The move got the attention of Senate Small Business and Entrepreneurship Committee leaders. Sen. John F. Kerry (D-MA), chair of that committee, disputes congressional blame for the situation, noting President Bush signed the bill lowering 7(a) fees. Moreover, borrowers and lenders will pay $179 million in fees and loan repayments in 2003, enough for a $10 billion program. "The administration just didn't consider it a priority," says Kerry.

SBA administrator Hector Barreto believes he can cobble together a $7 billion 7(a) loan program using some leftover guarantee funds from fiscal 2002. He also believes some potential 7(a) borrowers can be steered into the 504 Certified Development Company program.

STEPHEN BARLAS is a freelance business reporter who covers the Washington beat for 15 magazines.

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