C–Suite Wednesday — Mistakes Learned to Avoid Repeating in PPP 3.0
May 31, 2023
Bob Coleman
Publisher
With some calling the underwriting changes in SBA’s 7(a) loan program in the new SOP, PPP 3.0, I thought it would be appropriate to recap the Inspector General’s findings.
The March 2023 white paper reports on the performance of the 7(a) loan program during the pandemic and addresses potential risks that could impact its effectiveness while achieving its zero-subsidy rate goal.
One of the potential risks identified in the SBA’s white paper is the increase in loan amounts. In FY 2021, the total amount of loans increased to $31.4 billion from $19.4 billion in FY 2020 (62 percent increase) and $20.6 billion in FY 2019.
Rising interest rates: Another factor that could impact the 7(a) program is rising interest rates. As interest rates increase, it becomes more challenging for small businesses to repay their loans. This could lead to an increase in defaults and charge-offs, which would negatively impact lenders
Staffing shortages: The COVID-19 pandemic has caused staffing shortages across many industries, including the SBA. If the SBA is unable to provide adequate oversight and support to lenders, it could lead to increased risk. Lenders may not have the guidance they need to make informed decisions about which loans to approve, which could lead to defaults and financial losses.
Delayed defaults: In some cases, small businesses may be struggling to repay their loans, but lenders may not be aware of the problem. This could be due to delays in reporting or other issues. If lenders are not aware of these defaults, it could lead to a higher risk of financial loss.
Charge-offs: Finally, charge-offs are a significant risk for lenders in the 7(a) program. If a loan is charged off, it means that the lender has determined that it is unlikely to be repaid. This can lead to significant financial losses for lenders, especially if they have a large number of charge-offs.
In conclusion, the potential risks identified in the SBA’s white paper could have a significant impact on SBA lenders.