By Sarah Borchersen-Keto, CCH Washington Staff Writer

Small businesses in 31 states and Puerto Rico that have lost out as a result of the North American Free Trade Agreement will now have access, on a pilot basis, to lower-cost loans through the Small Business Administration (SBA).

"These loans will help finance economic revitalization in areas that have experienced trade-related job losses attributable to NAFTA," SBA Administrator Aida Alvarez said.

NAFTA went into effect in 1994. The goal of the agreement was to gradually remove tariffs and trade barriers among the United States, Canada and Mexico. As a result, trade has opened up among the countries, and consumers have benefited from less expensive products.

But to remain competitive, many industries had to consolidate or move operations to other regions or countries, and these changes have been difficult for many companies and their labor forces.

To help revitalize those businesses, spur new growth and encourage hiring in these areas, the federal government offers a couple of financing options.

The SBA's Section 504 Certified Development Company loan program is now the second such program available to small businesses hurt by NAFTA. Since August 1997, small businesses in affected areas have been eligible for the SBA's 7(a) lower-cost loans under the Community Adjustment and Investment Program.

Under the CDC program, small businesses are provided with long-term fixed-rate financing for major fixed assets. A 504 project usually includes a commercial loan covering up to 50 pct of the project cost, a borrower contribution of at least 10 pct, and a loan funded through the sale of 100-percent SBA-backed securities for the remaining amount.

As a bonus, the SBA said that under the pilot program the SBA fee, the CDC processing fee and the commercial lender participation fee will be paid by the North American Development Bank, an institution jointly capitalized and governed by the United States and Mexico in order to finance domestic investment in both countries.

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