WASHINGTON, D.C. – Today, the House Committee on Small Business is holding a full committee hearing titled “Under the Microscope: Reviewing Key SBA Programs with Associate Administrator Frost.”

Chairman Williams’ opening statement as prepared for delivery:

Good morning and welcome to today’s hearing which will focus on oversight of the SBA’s Office of Credit Risk Management.

This office oversees the SBA’s lending programs, including the flagship 7(a) loan program. In 2023, this program alone lent over $27 billion dollars to Main Street businesses.

In April of last year, the SBA finalized two rules that make drastic changes to this program, which many members of this committee have expressed concerns over.

The first rule removed the standardized underwriting procedures for 7(a) loans. The 7(a) program allows banks to offer loans to businesses that are on the edge of credit-worthiness. In order for the banks to extend these loans, the government backs between 75 to 85 percent of the dollar amount. Since the taxpayers are on the hook if enough of these loans go bad, it is very important that there are guardrails in place so businesses that get these loans have a realistic chance to pay them back.

Unfortunately, the SBA removed the underwriting criteria that allowed the program to run smoothly for decades and is now allowing each individual lender to use their own standards. This will make oversight into the lending activities much more challenging for the agency and increases the likelihood of loans going bad.

The SBA is reporting that they are seeing an increase in small-dollar loans, but at the same time, we have seen a sharp increase in early default rates within the program.

The second rule removed the cap that limited the number of lenders that could participate in this government lending program. Only a few years prior, the SBA determined that it simply did not have the capacity to oversee more lenders. And now, even though the Office of Capital Access had seen drastically reduced staffing levels, they surprisingly changed course and decided to take on more responsibility anyways.

We have already seen the SBA ignore some warning signs coming from the new lenders within the 7(a) program. When SBA Administrator Guzman testified to this Committee last year, she claimed that the SBA has a “rigorous application process for the SBLC program.” However, that claim is contradicted when seeing the SBA award a license to Funding Circle, a company that had reported operating losses the year prior to applying for this new license. During the company’s recent earning calls, the CEO claimed it would be too costly to get the SBA lending program functional. Because of this, the CEO stated that they are looking to sell this U.S. business line. Even though these comments were made during the application process, the SBA decided to ignore them and approved their license anyways.

The final thing I am looking forward to discussing is the SBA’s handling of EIDL Loans under 100,000 dollars. The Agency abruptly decided to stop collecting on these loans back in 2022, only to change course over a year later. While I am pleased that the agency claims they will start collecting on these loans, I still have many questions about the long-term servicing cost of this portfolio, the amount of taxpayer dollars that were lost during the year of inaction, and the estimated recoupment amounts from their efforts. We must ensure that the SBA is being a good steward of Americans’ tax dollars.

I want to thank you all again for being here with us today, and I am looking forward to today’s conversation.

With that I will yield to our distinguished Ranking Member from New York, Ms. Velázquez.

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