By Michael S. Gerber An administration plan to cut all subsidies to a federal small-business-loan program has raised the ire of business and banking groups as well as a growing list of lawmakers.

A bipartisan group of more than 50 House members — led by Small Business Committee Chairman Donald Manzullo (R-Ill.) and ranking Democrat Nydia Velázquez (N.Y.) — has signed a letter urging appropriators to maintain last year’s funding level of $79.1 million for the Small Business Administration’s (SBA) 7(a) loan program in the fiscal year 2005 budget.

Earlier this year, the SBA shut down the program because 2004 funding levels failed to cover the demand for the loans adequately. Congress passed a short-term solution that raised lenders' fees.

"Given this action, should Congress fail to adequately fund the program, policymakers will be left with the unenviable option of considerably increasing the cost of the program to small businesses," the lawmakers wrote to Reps. Frank Wolf (R-Va.) and José Serrano (D-N.Y.), chairman and ranking member of the Commerce, Justice, State, Judiciary and Related Agencies Appropriations Subcommittee.

Business groups and lenders who participate in the program are making a big push for appropriators to ignore the White House’s budget request, which would eliminate all federal funding for 7(a). The lenders don’t want to pay higher fees for 7(a) loans, which are provided by private banks but guaranteed up to 75 percent by the government.

While the SBA had originally proposed lowering the guarantee to 50 percent, an administration official said that plan was no longer on the table. But the agency still hopes to raise lender fees to pay for the program.

Banks agreed to higher fees for the short-term fix earlier this spring but say further increases would threaten the program, which is predicted to give out more than $12 billion in loans this fiscal year.

"You can only raise the fees so high [before] the lenders and the borrowers will say that program is completely unattractive," said Paul Merski, chief economist for the Independent Community Bankers of America (ICBA). "The loans are not inexpensive loans to make. … If the fees go up, [lenders] will just drop out of the program."

But the administration argues that the uncertainty of the appropriations process is exactly what led to the temporary shutdown of the 7(a) loans in January.

"The program should not be designed to rely on appropriations, and appropriations can be problematic in circumstances that are beyond people’s control," said Kevin Washington, a spokesman for the SBA.

The SBA has no plans to shut down the program, just to change the way it is funded, agency officials said. One SBA official questioned why industry would push for more appropriations when the budget is tight because of the deficit.

"Where’s the offset?" the SBA staff member asked. "It’s going to come out of our budget," meaning other programs might have to be cut, the official added.

Members of the Senate Small Business Committee successfully pushed authors of the Senate budget resolution to include funding for the small-business-loan program.

They have also urged the leaders of the relevant appropriations subcommittee to include $129 million for 7(a) funding in their spending bill this year.

The loan program could turn into a campaign issue as well. Sen. John Kerry (D-Mass.), the presumptive nominee for president, is the ranking Democrat on the Senate Small Business Committee.

"[This] being an election year, keeping the 7(a) loan program alive in a fair manner falls in somewhere after Mom and apple pie," said Dan Berger, a lobbyist for America’s Community Bankers. "The bottom line is, whatever is done, we must make sure that community banks can continue to provide loans to small businesses."

Along with lenders, small-business groups are pushing Congress to fund the 7(a) program.

"[Our members] have expressed concern about plans they have that they were concerned were going to fall through because of this funding stream," said Ray Stock, a lobbyist for the American Veterinary Medical Association.

"They come out [of school] with major debt hanging over their head," Stock said. "If they want to build a practice, then they’ve got to get the capital to do that."