June 11, 2019
By Bob Coleman
Editor, SBA Hot Topic Tuesday
SBA Hot Topic Tuesday — SBA 7(a) Fees Exceed Guaranty Payments to Lenders by Over $1 Billion the Last 4 Years
I want to start an industry-wide discussion about SBA’s budget.
The problem is the Administration has inserted a $99 million line-item in SBA’s 2020 budget to increase loan-loss reserves for the 7(a) program. Congress has zero appetite to approve this item via a taxpayer subsidy, so the amount would need to be raised by increasing SBA 7(a) borrower and lender fees.
The challenge is the $99 million number comes from an OMB’s black box number-crunching algorithm that no one has access — industry, trade groups, even Congress.
Here are three data points to start the conversation.
(Note: please offer your feedback! Let me know what I got right, and what I got wrong! All comments will be confidential unless you explicitly give me permission to publish your thoughts.)
1) SBA 7(a) Fees are in Excess of $1.2 Billion Over Guaranties Paid the past 4 years
2018 and 2017 figures — 2018 SBA Agency Financial Report, page 70
2016 and 2015 figures — 2016 SBA Agency Financial Report,page 68
2) SBA Operates at a “Profit” to the U.S. Taxpayer
Per SBA’s agency financial report over the past five years SBA has operated at a $145 million “profit” to the U.S. taxpayer. These numbers reflect the totality of all of SBA’s operations — all lending programs including disaster loans
Total SBA Net Cost of Operations over the past 5 years
2018 — $622 million
2017 — $4 million
2016 — $339 million
2015 — ($644 million) — surplus
2014 — ($466 million) — surplus
2015-2018 numbers — SBA 2018 Agency Financial Report, cover page
2014 numbers — SBA 2016 Agency Financial Report, cover page
3) SBA’s Cash Fund with Treasury Increased $1.4 billion in 2018
SBA’s cash fund balance with Treasury increased $1.4 billion in 2018. From $6.7 billion to $8.1 billion. (I know this doesn’t reflect the cost of operations, but as lenders we all want to see cash increasing versus decreasing.)
Source: 2018 SBA Agency Financial Report, page 30
SBA 7(a) Subsidy Re-estimates
I clearly understand the need for an annual re-estimate of projected guaranty purchases for 7(a). That is an appropriate calculation and is discussed in great detail in SBA’s agency financial report.
I’ve chosen not to go down that rabbit hole today, but will address it in the future.
Today, I want to start with basic numbers that on the surface do not support the $99 million line item request.
Finally, check out these two charts.
Chart XXII proves that SBA 7(a) is a net money maker for the U.S. Taxpayer with negative subsidy rates.
Chart XIX shows consistent SBA 7(a) loan delinquency rates hovering around 1%. True, there was a spike in charge-off rates in 2017, but my guess is post-recession charge-offs working the way through the system, as opposed to a deterioration of the loan portfolio. The delinquency numbers back up this assumption.