During a recent full Committee on Small Business hearing, lawmakers voiced serious concerns over the Small Business Administration’s (SBA) recent alterations to its 7(a) Loan Program. The hearing, titled “Taking on More Risk: Examining the SBA’s Changes to the 7(a) Lending Program Part I”, was led by Chairman Roger Williams (R-TX).
The 7(a) Loan Program is the SBA’s flagship offering, providing a government-backed guarantee for loans given by regular lenders to small businesses that might otherwise struggle to secure funding. However, the SBA’s changes to the program, which include reducing underwriting standards, are causing concern among lawmakers.
“Today’s hearing did nothing to assuage our concerns over the Small Business Administration’s reckless rule changes to their 7(a) Loan Program which will reduce underwriting standards and add more risk of a taxpayer-funded bailout of the program,” Chairman Williams stated.
The concerns raised in the hearing centered around the perceived risk to taxpayers, who could potentially bear the financial burden should the loans default. The Committee on Small Business expressed its commitment to safeguarding the SBA’s cornerstone program and ensuring taxpayers are not left to cover the cost of bad loans.
One of the key concerns raised was the shift towards a more subjective underwriting method for loans under $500,000. This change is seen as increasing risk, as 75% of all 7(a) loans fall under this amount.
Rep. Meuser questioned the SBA representative, Mr. Kelley, on the matter: “By moving the program, the 7(a) portfolio, towards a more subjective underwriting method for loans under $500,000, how does that protect taxpayers from losses?”
The hearing also highlighted concerns around oversight. Rep. Luetkemeyer noted a shortfall in the Office of Credit Risk Management’s (OCRM) oversight, with only 108 of its planned 358 reviews of high-risk lenders conducted in 2019. He pointed out that the situation has worsened during the COVID-19 pandemic, with staffing levels dropping by an additional 38%.
Despite these concerns, the SBA has lifted the Small Business Lending Company (SBLC) moratorium, allowing more non-depository entities to enter the market. These entities are regulated solely by the SBA rather than federal regulators.
The changes to the 7(a) program raise critical questions for small businesses relying on these loans. The hearing underscored lawmakers’ commitment to addressing these concerns and protecting the interests of small businesses and taxpayers alike.
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