Business & Economy

Small business loan program hits ceiling, so some entrepreneurs will have to wait

U.S. Rep. Judy Chu (D-CA) is co-author of a bill to raise the lending cap of the SBA 7(a) loan program
U.S. Rep. Judy Chu (D-CA) is co-author of a bill to raise the lending cap of the SBA 7(a) loan program
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An important loan program run by the federal Small Business Administration (SBA) has used up its annual pot of money, potentially delaying new funding for businesses in Southern California and throughout the country.

A Chatsworth-based online finance company and a distributor of food to hotels in Las Vegas are among the small businesses that could be waiting longer for loans through the program.

The SBA’s 7(a) loan program offers financing to small businesses, most of which don’t qualify for direct loans from banks. The program’s annual lending cap is $18.75 billion. It hit that cap on Thursday, with more than two months remaining in a fiscal year that ends September 30.

From October of last year to the end of June, lenders had made more than 45,000 loans nationwide through the 7(a) program, totaling more than $16.5 billion.That’s about a quarter more loans than were made in the same period the year before. 

The unprecedented demand is a sign of a growing economy, according to Mike Blass, spokesman for the Small Business Administration Los Angeles District office.  In the Los Angeles district, which includes L.A., Ventura, and Santa Barbara Counties, lenders made 2104 loans, totaling more than a billion dollars, a sizable share of the nationwide total.

“People are requesting loans, people are getting loans and people are creating business, so that’s good news,” Blass told KPCC.

But the bad news is for those entrepreneurs and businesses that have applied for the 7(a) loans and have yet to receive them. They’re now on what the SBA calls a "queue" - a waiting list of sorts - until Congress moves to raise the lending cap or the next fiscal year begins on October 1. 

"Any lapse in this program is going to have an impact on thousands of entrepreneurs and businesses," said Lynn Fernandez, Vice President of Lending at the Sherman Oaks-based Valley Economic Development Corporation, which helps small businesses in California and seven other states get loans through the 7(a) program. 

Fernandez now has 12 clients who have applied for the loans and were on track to receive them, but will likely have to wait. They include an online lending company based in Chatsworth that needs the loan soon. 

"If we don’t get the funding to her within 20 days, her business will be shut down because it’s impacting her cash flow," Fernandez said of the business owner. "She cannot wait until October 1 to receive her financing."  

Congress sets the 7(a) program's lending limit and can vote to authorize raising it. San Gabriel Valley Congresswoman Judy Chu is co-sponsoring a bill that would do just that and is hoping her colleagues will take action before heading off on a long recess next week. 

"Even if we do increase the legal lending limit, there is no cost to the taxpayer," Chu told KPCC. "This whole program is self-supporting, and it does so much good for these small businesses."  

Chu, who is on the House of Representatives Small Business committee, added that 311 small businesses in her district have benefitted from 7(a) loans, including an aviation technology firm, used car company, bakery and pet spa.

Lynn Fernandez of the Valley Economic Development Corp. estimates her twelve clients now waiting for the loans employ a total of 119 people and would hire another 50 once they got the loans. The uncertainty of the moment is bringing back unpleasant memories of the federal government shut-down two years ago. The shut-down froze the SBA loan-making process for a couple of weeks, but Fernandez says her clients dealt with the fall-out for about 3 months.

"We don’t want to go through that nightmare again," Fernandez said.