LegiStorm

Summary:

The Small Business Administration (SBA) administers several programs to support small businesses, including loan guaranty programs designed to encourage lenders to provide loans to small businesses “that might not otherwise obtain financing on reasonable terms and conditions.” The SBA’s 7(a) loan guaranty program is considered the agency’s flagship loan program. Its name is derived from Section 7(a) of the Small Business Act of 1953 (P.L. 83-163, as amended), which authorizes the SBA to provide business loans and loan guaranties to American small businesses. In FY2017, the SBA approved 62,430 7(a) loans totaling more than $25.4 billion. The average approved 7(a) loan amount was $407,616. Proceeds from 7(a) loans may be used to establish a new business or to assist in the operation, acquisition, or expansion of an existing business. Some Members of Congress have argued that the SBA should be provided additional resources to assist small businesses in acquiring capital necessary to start, continue, or expand operations with the expectation that in so doing small businesses will create jobs. Others worry about the long- term adverse economic effects of spending programs that increase the federal deficit. They advocate business tax reduction, financial credit market reforms, and fiscal restraint as the best means to help small businesses further economic growth and job creation. This report discusses the rationale provided for the 7(a) program; the program’s borrower and lender eligibility standards and program requirements; and program statistics, including loan volume, loss rates, use of proceeds, borrower satisfaction, and borrower demographics. It also examines issues raised concerning the SBA’s administration of the 7(a) program, including the oversight of 7(a) lenders and the program’s lack of outcome-based performance measures. The report also surveys congressional and presidential actions taken in recent years to enhance small businesses’ access to capital. For example  Congress approved legislation during the 111 Congress to provide more than $1.1 billion to temporarily subsidize the 7(a) and 504/Certified Development Companies (504/CDC) loan guaranty programs’ fees and temporarily increase the 7(a) program’s maximum loan guaranty percentage to 90% (funding was exhausted on January 3, 2011); raise the 7(a) program’s gross loan limit from $2 million to $5 million; and establish an alternative size standard for the 7(a) and 504/CDC loan programs.  The SBA waived the up-front, one-time loan guaranty fee and ongoing servicing fee for 7(a) loans of $150,000 or less approved in FY2014, FY2015, and FY2016; the up-front, one-time loan guaranty fee for 7(a) loans of $150,000 or less approved in FY2017; and the up-front, one-time loan guaranty fee for 7(a) loans of $125,000 or less approved in FY2018.  The SBA also waived the up-front, one-time loan guaranty fee for veteran loans under the SBAExpress program (up to $350,000) from January 1, 2014, through the end of FY2015 (called the Veterans Advantage Program); 50% of the up- front, one-time loan guaranty fee on all non-SBAExpress 7(a) loans to veterans of $150,001 to $5 million in FY2015 and FY2016; 50% of the up-front, one-time loan guaranty fee on all non-SBAExpress 7(a) loans to veterans of $150,001 to $500,000 in FY2017; and 50% of the up-front, one-time loan guaranty fee on all non-SBAExpress 7(a) loans to veterans of $125,001 to $350,000 in FY2018.  P.L. 114-38, the Veterans Entrepreneurship Act of 2015, provided statutory authorization and made permanent the up-front, one-time loan guaranty fee for veteran loans under the SBAExpress program and increased the 7(a) program’s FY2015 authorization limit to $23.5 billion from $18.75 billion.  Congress approved legislation that increased the 7(a) program’s authorization limit from $23.5 billion in FY2015 to $26.5 billion in FY2016, $27.5 billion in FY2017, and $29.0 billion in FY2018.  P.L. 115-189, the Small Business 7(a) Lending Oversight Reform Act of 2018, among other provisions, codified the SBA’s Office of Credit Risk Management; required that office to annually undertake and report the findings of a risk analysis of the 7(a) program’s loan portfolio; created a lender oversight committee within the SBA; authorized the Director of the Office of Credit Risk Management to undertake informal and formal enforcement actions against 7(a) lenders under specified conditions; redefined the credit elsewhere requirement; and authorized the SBA Administrator, starting in FY2019 and after providing at least 30 days’ notice to specified congressional committees, to increase the amount of 7(a) loans not more than once during any fiscal year to not more than 115% of the 7(a) program’s authorization limit. The Appendix to this report provides a brief description of the 7(a) program’s SBAExpress, Export Express, and Community Advantage programs.