Chairman Williams: “Taking on More Risk: Examining the SBA’s Changes to the 7(a) Lending Program Part I”
Washington, May 10, 2023
WASHINGTON, D.C. – Today, the House Committee on Small Business is holding a full committee hearing titled “Taking on More Risk: Examining the SBA’s Changes to the 7(a) Lending Program Part I.”
Chairman Roger Williams’ opening statement as prepared for delivery:
Good morning and welcome to today’s hearing which will focus on the much-needed oversight of the Small Business Administration and their proposed changes to the 7(a) Loan Program.
The SBA administers several programs to support small businesses that encourage lenders to provide loans to Main Street who might not otherwise be able to obtain financing. Their flagship 7(a) Loan Program offers government guaranteed loans to eligible small businesses for short and long-term capital needs.
The SBA is in the process of finalizing two rules that represent the most significant changes to the program in decades. While there are many troubling aspects of these rules, the most problematic in my opinion are the changes to the underwriting standards while simultaneously allowing more FinTech companies to become 7(a) lenders.
The SBA is throwing away the nine prescriptive elements of underwriting that lenders have been using for decades to determine if a borrower is eligible for a government backed loan. Instead, lenders will now be able to use whatever lending criteria they see fit. Considering that taxpayers will be the ones on the hook if a significant portion of these loans go bad, we should not be loosening the criteria for lenders to give loans.
Additionally, these rules reverse the moratorium on licensing new Small Business Lending Companies, better known as SBLCs. This moratorium was initially put in place in the 1980s because the SBA recognized that they were not capable of being the primary federal regulator of these entities. Given the unacceptable levels of fraud that occurred in the SBA’s pandemic programs, I have serious concerns that the agency is not up to the task of taking on more responsibility.
I am not alone in raising these concerns about the SBA’s capabilities. Last month, when the SBA’s Inspector General testified before this committee, he noted the significant challenges that the agency will face in managing the increased loan volume going forward as well as the significant shortages of staff within the department charged with overseeing SBLCs.
There are serious concerns that these changes to the program will be detrimental to taxpayers and small businesses alike. If more loans start to default, the fees to the program are going to have to be raised, or the agency will come to Congress to ask for more taxpayer dollars to make up for the shortcomings. The Standard Operating Procedures released late last night are not sufficient and do not satisfy our concerns.
This is an extremely important hearing as we in Congress discuss what the future of this program will look like, and what we must do legislatively to ensure the programmatic integrity of the 7(a) program in the future. I want to thank you all again for being here with us today and I am looking forward to today’s conversation.