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Small Business Panel Hits SBA for Proposed Cuts to Microloans

Small Business Administration Chief Administrator Steve Preston took heat from the Senate Small Business and Entrepreneurship Committee today on the rationale for zeroing out the agency’s “microloan” program.

The microloan program funds nonprofit organizations that in turn offer start up loans of $35,000 or less to low-income entrepreneurs, more than half of whom are women or minorities. It has long been a bone of contention between Congress and the Bush administration.

While the president’s fiscal year 2008 budget does not propose eliminating the microloan program — a step that the administration has sought in recent years — it does not provide any funding for the program. The SBA also wants to eliminate grants that these organizations use to provide business counseling and training to microloan recipients.

Without a federal subsidy, the program would probably collapse, warned Sen. John Kerry (D-Mass.), the Small Business panel’s chairman.

“It’s such a no-brainer that we’re moving in the wrong direction,” Kerry said at the hearing. “The administration is talking about microlending for Iraq, but we’re cutting it here.”

Over $54 million in microloans have been disbursed in Iraq, according to U.S. Ambassador Zalmay Khalilzad, Earlier this year, the Bush administration announced that it would continue to pursue microloans in Iraq.

Preston, making his first appearance before the Senate panel since his confirmation in June, countered that making the program self-sufficient ultimately will save taxpayers.

Preston added that SBA had placed a high priority on reaching the underserved markets that traditionally rely on the microloans.

Kerry countered Preston’s explanation by calling the administration’s plan a cost-shifting mechanism.

The panel’s ranking member, Sen. Olympia Snowe (R-Maine), said she couldn’t understand the administration’s resistance to the microloan program.

“Microlenders are either going to have to raise their rates or not lend at all,” Snowe said.

All told, Bush’s proposal calls for $464 million in new funding for SBA programs coupled with $329 million from carry-over balances for the disaster loan program and $21 million in reimbursable services.

“It’s not a lot of money, but it will go a long way,” Preston said at the hearing.

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