Committee on Small Business Hearing Continues to Raise Serious Bipartisan Concerns Over the SBA’s Changes to the 7(a) Lending Program
Full Committee Hearing Recap
Washington, May 17, 2023
WASHINGTON, D.C. – Today, Chairman Roger Williams (R-TX) led a full Committee on Small Business hearing titled “Taking on More Risk: Examining the SBA's Changes to the 7(a) Lending Program Part II.” Chairman Williams issued the following statement after concluding today’s hearing.
“Today’s productive hearing highlighted how the SBA’s misguided rule changes jeopardize the long-term solvency of the 7(a) Loan Program and the businesses that rely on it,” said Chairman Williams. “The testimonies we heard today confirmed our fears that the agency is neither prepared nor equipped to take on additional risk and responsibility. My colleagues and I remain committed to protecting the integrity of the SBA’s flagship program so that taxpayers and America’s small businesses won’t be the ones left with the tab to pay for these reckless changes that are opposed by both parties.”
Watch the full hearing here.
Below are some key excerpts from today’s hearing:
Rep. Luetkemeyer: “So Ms. Frazier, you’re a banker. You like this competition? Having the SBA be the new bank lender in your community for small businesses when they’re supposed to be the lender of last resort, now, they’re your main competition. How do you think about that?” Ms. Alice Frazier: “I don’t think very highly of it quite frankly. As I’ve testified before, when the direct lending was being proposed from that perspective is that what you miss and what many of us are saying here is the relationship and the coaching and the counseling many of these borrowers need in this process and they need the education towards their financials and to create an online process that scored in the decisions made against a few metrics or factors, you don’t achieve what I believe is what everyone desires.”
Rep. Van Duyne: “In the recently issued SOP which takes effect on August 1st, SBA revised the requirements regarding what a lender has to do to prove that the loan complies with a statute requires, which says a borrower can’t get a 7(a) loan if they can obtain credit elsewhere. Mr. Wilkinson, what did SBA change about credit elsewhere and what do we need to know about these changes?” Mr. Tony Wilkinson: “Two important changes. First of all, every time you make an SBA loan today, you have to have a narrative in the credit file as to specifically why that borrower cannot obtain credit elsewhere. It’s got to be detailed out. The rule change has been made in my opinion to benefit the Fintech group who wants a computer driven algorithm, low-touch program, so they made this a check the box exercise so all you have to do as the lender is check a box and it’s done. Secondly, they have changed the personal resources test. Beforehand, if a borrower had significant personal wealth, that would be a source of funds that we would say have to be tapped first before borrowing on an SBA loan. That has been changed so personal wealth is no longer an issue so yeah, rich people can get 7(a) loans.”
Rep. Crane: “Last week, I asked Mr. Patrick Kelley, I raised a concern that these rule changes would leave taxpayers on the hook to bail out the SBA. Along those same lines, Mr. Kassar, you mentioned default rates to Mr. Meuser. Do you think these rules will lead to more or fewer defaults on government-backed loans?” Mr. Ami Kassar: “It’s hard to imagine a scenario where these won’t lead to significantly higher defaults because of the complete loosening of controls and the danger is, we won’t understand what levers created them because so many levers are being pulled and changed at the same time.” Rep. Crane: “If that’s the case sir, who will eventually be on the hook to bail out the SBA?” Mr. Kassar: “The taxpayers or the small businesses because it will levy heavier fees against them to continue the program.”