Strengthening 7(a) Loan Program

January 17, 2018

On Jan. 9, House Committee on Small Business Chairman Steve Chabot (R-Ohio), Senate Small Business and Entrepreneurship Committee Chairman Jim Risch (R-Idaho), and respective Ranking Members Nydia Velázquez (D-N.Y.) and Jeanne Shaheen (D-N.H.) joined together to introduce the Small Business 7(a) Lending Oversight and Reform Act of 2018 (H.R 4743/S. 2283). This bipartisan, bicameral legislation will increase the Small Business Administration’s (SBA) oversight authority over the 7(a) Loan Program.

The 7(a) Loan Program is an SBA program that helps entrepreneurs and small businesses access credit to start and grow their businesses. 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.

The House and Senate Small Business Committees have held multiple hearings on the matter and several meetings to ensure the program continues to run effectively and with proper oversight. Further, the House Committee on Small Business will meet for a hearing titled, “Strengthening SBA’s 7(a) Loan Program on Jan. 17. The hearing will examine the SBA 7(a) Loan Program and how changes proposed in H.R. 4743, the Small Business 7(a) Lending Oversight Reform Act of 2018, could strengthen oversight and bolster the integrity of the program for small businesses and American taxpayers.

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.