By KENT HOOVER
khoover@bizjournals.com

Lenders who make Small Business Administration loans urged Congress to increase the authorization level for the agency's flagship 7(a) loan program this year.

This increase, from $17.5 billion to $19 billion, needs to happen before Congress leaves Washington, D.C., for its month-long August recess, lenders contend. Otherwise, "it is highly likely that the program cap could be reached before Congress is back in session, thus shutting off small businesses' access to this important source of capital," said Lynn Ozer, executive vice president of Susquehanna Bank in Pottstown, Pa.

Ozer manages the bank's SBA lending program and serves on the board of directors of the National Association of Government Guaranteed Lenders, a trade group for SBA lenders.

SBA-guaranteed 7(a) loans are an important source of long-term capital for small businesses. This year they are especially popular - as of June 3, more than $14.4 billion of these loans had been approved. That's up 41 percent over the same period a year earlier, and up 181 percent from the same period two years ago.

About $9 billion of this year's 7(a) total came in the first quarter of the SBA's fiscal year, which began Oct. 1. Banks and borrowers rushed to take advantage of higher government guarantees and lower fees before these temporary breaks expired at the end of December. The SBA, however, has continued to approve more than $1 billion a month in 7(a) loans since Jan. 1. At this pace, the program will hit its authorization level well before Sept. 30, the end of the fiscal year.

"It would be a shame for the program that is best meeting the credit needs of small businesses to be suspended because of an arbitrary program ceiling," Ozer said.

No additional appropriations from Congress would be needed to raise the ceiling on 7(a) lending, she noted.

An SBA spokeswoman declined to say whether the agency wants Congress to raise the 7(a) lending limit. Hayley Meadvin said the SBA "is monitoring loan volume and trends closely, and having discussions within the administration and with our lenders related to those trends and managing the loan authority through the end of the year."

Rep. Sam Graves, R-Mo., who chairs the House Small Business Committee, "definitely supports the uninterrupted operation of the successful 7(a) program and will work with the Small Business Administration to ensure appropriate actions are taken to help the small businesses who need these loan guarantees," said committee spokesman DJ Jordan.

But Rep. Nydia Velazquez of New York, the committee's ranking Democrat, is not happy with one trend in SBA lending: A smaller percentage of 7(a) loans are going to startup businesses than in the past. As of June 3, 23 percent of 7(a) loans this year had gone to startups, compared with 25 percent in fiscal 2010 and 35 percent in fiscal 2011.

"For these loans to ignite real job growth, the agency must concentrate on the right kind of small businesses - namely startups with the highest potential for job creation," Velazquez said. "Unfortunately, these small startups are not seeing their fair share of SBA loans."

The average size of 7(a) loans also increased, partly due to an increased maximum amount from $2 million to $5 million. The average 7(a) loan this year is $377,625, compared with $257,715 a year ago. Despite the 41 percent increase in 7(a) volume this year, 1,427 fewer loans have been approved this year compared with last year.

The International Franchise Association, however, contends the higher loan limits are helping to spur job growth by franchised businesses. These business owners usually must make an initial investment of $750,000 to $2 million for their first unit.

These franchisees "would reach the old loan limits by the time they sought to build the second or third store," said William Hall, CEO of William G. Hall & Co. and operator of five Dairy Queen franchises in Texas. "Lower loan limits were restricting the true job creation potential of our economy."

Despite this help from the SBA, however, the IFA estimates that overall lending to franchise businesses will fall $2 billion short of demand this year. It is working with lenders and regulators to address this shortfall.