At a recent hearing on small business, lawmakers raised serious concerns about the Small Business Administration’s (SBA) recent changes to its 7(a) loan program. The hearing, titled “Taking More Risks. examining the SBA’s changes to Part I of the 7(a) lending program,” chaired by Chairman Roger Williams (R-TX).
The 7(a) Loan Program is the SBA’s flagship offering, providing a government-backed guarantee from conventional lenders to small businesses that might otherwise struggle to secure financing. However, the SBA’s changes to the program, which include a reduction in underwriting standards, are causing concern among lawmakers.
“Today’s hearing did nothing to address our concerns about the Small Business Administration’s reckless rule changes to their 7(a) Loan program that will lower underwriting standards and increase the risk of bailing out the taxpayer-funded program,” said Chairman Williams.
Concerns raised at the hearing centered around the perceived risk to taxpayers who could bear the financial burden if the loans default. The Small Business Committee has expressed its commitment to protecting the SBA’s cornerstone program and ensuring that taxpayers do not cover the cost of bad loans.
One of the main concerns raised was the move to a more subjective underwriting method for loans under $500,000. This change is seen as an increased risk because 75% of all 7(a) loans are in this amount.
Rep. Meiser questioned SBA representative Mr. Kelly on this matter; “By moving the program, the 7(a) portfolio, to a more subjective allocation method for loans under $500,000, how does that protect taxpayers from losses?”
The hearings also highlighted concerns about oversight. Congressman Luetkemeyer cited oversight oversight by the Office of Credit Risk Management (OCRM), with only 108 of 358 planned reviews of subprime lenders in 2019. He noted that the situation worsened during the COVID-19 pandemic. staffing levels decreased by an additional 38%.
Despite these concerns, the SBA has lifted the Small Business Lending Company (SBLC) moratorium, allowing more non-depository institutions to enter the market. These entities are regulated solely by the SBA, not federal regulators.
The changes to the 7(a) program raise important questions for small businesses that rely on these loans. The hearing underscored lawmakers’ commitment to addressing these concerns and protecting the interests of small businesses and taxpayers.
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