Senate OK’s SBA 7(a) Loan Bill

June 6, 2018

On June 5, the Senate passed legislation to enhance the Small Business Administration’s (SBA) oversight of their flagship 7(a) Loan Program. The bill, the Small Business 7(a) Lending Oversight Reform Act (H.R. 4743) was introduced in the House by Committee on Small Business Chairman Steve Chabot (R-Ohio) and Ranking Member Nydia Velázquez (D-N.Y.), and in the Senate by Small Business and Entrepreneurship Committee Chairman Jim Risch (R-Idaho) and Sen. Jeanne Shaheen (D-N.H.).

The 7(a) Loan Program is an SBA program that helps entrepreneurs and small businesses access credit to start and grow their businesses where they otherwise wouldn’t be able to through traditional lending avenues.

The Small Business 7(a) Lending Oversight and Reform Act of 2018 preserves this important loan program by:

  • Strengthening SBA’s Office of Credit Risk Management by outlining in statute the responsibilities of the office and the requirements of its director;
  • Enhancing SBA’s lender oversight review process, including increasing the office’s enforcement options;
  • Requiring SBA to detail its oversight budget and perform a full risk analysis of the program on an annual basis; and
  • Strengthening SBA’s Credit Elsewhere Test by clarifying the factors that must be considered.

For years, Congress, the SBA and lenders have wrestled with how best to ensure SBA lending programs are only used to fill the gap for Main Street entrepreneurs who cannot obtain a conventional small business loan. The legislation offers clarity of Congressional intent that an SBA loan recipient must fall into one of the following categories.

  • Startups or small businesses less than two years old;
  • Collateral coverage is less than 100 percent of loan amount;
  • Risky industries defined by SBA, e.g. assume restaurants;
  • The business needs a longer loan amortization to “assure the ability of the loan applicant to repay the debt from the actual or projected cash flow of the business;”
  • “Any other factor relating to the particular credit application, as documented in detail by the lender that cannot be overcome except through obtaining a Federal loan guarantee under prudent lending standards.”

Along with giving SBA more regulatory authority over lenders, the bill also eliminates the hard cap of budget authority by allowing SBA to exceed congressionally mandated limits by 15 percent. The FY18 7(a) budget authority is $29 billion — SBA can now fund up to $33.3 billion for FY18. According to the measure, a Director of the Office of Credit Risk Management will be named and a new SBA Lender Oversight Committee will be established, giving SBA the authority to fine lenders up to $250,000 for SBA 7(a) program violations.

Many small businesses rely on the 7(a) Loan Program, and this legislation will give the SBA the tools it needs to run the program more efficiently and effectively, while continuing to provide the financing that entrepreneurs need in order to build and grow their businesses. NSBA applauds the House and Senate Small Business Committees for their leadership on this important program.

The bill now awaits President Donald Trump’s signature.