Should There be More Oversight of the Small Business Administration’s 7(a) Loan Program? (H.R. 4743)

What is H.R. 4743?

(Updated September 24, 2018)

This bill was enacted on June 21, 2018

This bill would strengthen the Office of Credit Risk Management within the Small Business Administration (SBA) and ensure that small businesses receive the capital they need to grow and thrive. The SBA would be able to raise its 7(a) lending cap, so as to avoid interruption in the flow of loans to small businesses, which has been an issue in the past. The bill would also give the SBA more authority to improve the program with monitoring capabilities to ensure it is being run efficiently while also increase the programs maximum lending authority.

Additionally, the bill would:

• Strengthen SBA’s Office of Credit Risk Management by outlining in statute the responsibilities of the office and the requirements of its director;

• Enhance SBA’s lender oversight review process, including increasing the office’s enforcement options;

• Require SBA to detail its oversight budget and perform a full risk analysis of the program on an annual basis;

• Strengthen the SBA’s Credit Elsewhere Test by clarifying the factors that must be considered.

The SBA 7(a) loan program provides a maximum amount of $5 million, with no minimums. The SBA does not itself provide the funds to the borrower. Rather, it guarantees lenders 85 percent of loans of $150,000 or less and a 75 percent for loans of more than $150,000. The 7(a) loan program is the SBA’s primary program for providing financial assistance to small businesses.

Argument in favor

The 7(a) loan program is a vital source of capital for thousands of small businesses unable to secure financing through traditional lending. This legislation would provide easier and more secure access to funding for small businesses throughout the country.

Argument opposed

If Congress is serious about increasing small businesses’ access to capital it would take more aggressive actions to lighten the burden of taxes and regulations on small businesses. The 7(a) Loan Program doesn’t need additional oversight.

Impact

Small business owners; lenders; and the SBA.

Cost of H.R. 4743

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Sponsoring Rep. Steve Chabot (R-OH) introduced this bill to ensure that small businesses continue to have access to financing through the SBA’s 7(a) loan program:

“Many small business owners are ready to turn their dreams into a reality but face obstacles to finance it. One of the many ways they are able to get the capital they need is the 7(a) loan program.”

Original cosponsor Rep. Nydia Velazquez (D-NY) added:

“Access to capital is critical to the success of small businesses. Through the 7(a) program, the SBA helps fill in the gaps in the capital markets, mitigating some of the risk to lenders by guaranteeing that these loans will be repaid.”

This legislation passed the House Small Business Committee on a voice vote and has the support of 11 bipartisan cosponsors, including seven Democrats and four Republicans. It has been endorsed by several trade associations representing the financial services industry and the U.S. Chamber of Commerce.

A companion bill was introduced in the Senate in March under the same title as S.2283 which has been referred to the Senate Small Business and Entrepreneurship Committee.

Media:

• House Small Business Committee Democratic Press Release
  
• American Bankers Association (In Favor)