SBA is the Sweetheart of Capitol Hill

April 3, 2015

By Bob Coleman
Editor, Coleman Report

I recently interviewed Kent Hoover, Washington Bureau Chief, The Business Journals and he gave us a great update about what’s going on in Washington concerning the SBA and small business lending.

Listen to my 8 minute interview here.

Kent Hoover has been Washington bureau chief for American City Business Journals since 1999. His focus is on Small business covering Congress and the federal government for 40 business journals and

Bob Coleman: I’m going to let you tell us what is going on. First of all what is the state of SBA lending? How do we look in the budget? And how is it perceived on the Hill?

Kent Hoover: Well the 7(a) program is going great guns. We are almost halfway through the fiscal year and it looks like we already have $9.4 billion in 7(a) loans approved. So they are going to get close to hitting that $18.75 billion cap. Of course this is a gross number; the net number will be smaller. They probably won’t pivot to the point where they have to have a lending freeze or start rationing loans or anything like that. Like last year, Congress came in and said, ‘You are getting close, let’s jack it up.’

Right now the 7(a) program seems to be the sweetheart of Capitol Hill. Not only did they raise the authorization level last year, the administration is asking again to raise it to $21 billion. The House Small Business Committee says, ‘We’ll see that and raise you to $23.5 billion.’

Bob Coleman: And these are both lead by the Republicans.

Kent Hoover: That’s right. That is what is interesting about it. That’s the good news. Meanwhile the poor 504 program is kind of limping along. It will be interesting to see what happens with that program. Or if it’s just not needed as much anymore now that the commercial real estate market has improved. Maybe banks are more willing to make conventional loans to these borrowers and the 504 program is not needed as much.

Bob Coleman: My opinion on that is 504 is in a low interest rate environment, 504 is not that attractive. Once interest rates increase and the 7(a) premiums decrease, the 504 market will make a comeback. But you are right, it is certainly down from pre-recession levels.

Export-Import Bank

Kent Hoover: What is interesting to me right now, if I were an SBA lender, I would watch very closely with what happened with the Export-Import Bank. The same ideological arguments being made against the Export-Import Bank could be made against SBA lending. Being, ‘The government shouldn’t be in the business of financing businesses, it’s distorting the market, they are picking winners and losers.’ It’s like the government itself is doing it, even though a bank is making the decision, there is half a government involvement because there is a government guaranty. So I guess that is where we are on that.

We’ll see where that goes, they have to make a decision on Export-Import Bank. They have basically kicked the can down the road. They temporarily reauthorized it and stated that they will take it up again in a couple months and do some reforms. But the hard line ideological folks are still going great guns against Ex-Im. You know, Heritage and Cato and the Koch Brothers. It’s going to be a tough issue for a lot of Republicans.

So If for some reason they don’t reauthorize Ex-Im I think SBA could be next in their sights. You see signs like that. You see groups like doing all of these exposés on SBA loans going to luxury resorts and green development. They say affiliates of Fortune 100 companies but I think they just mean franchisees, and that is a whole other issue. A lot of folks are thinking that franchisees are actually part of the big business. But they are independent businesses. You see that questioning of franchisee loans by the SBA.

All of that stuff is percolating. We talk about one issue, raising the loan limit from $2 million to $5 million. Right now almost half of the SBA loan dollars are going to loans over $2 million. I hope these are qualified small businesses. There is nothing wrong with making these loans. That is what the loan limit is now. I think it does add to the perception problem that SBA has gotten away from serving the needs of truly small businesses and it’s helping businesses that maybe don’t need the government guaranty.

As SBA lenders I think the industry needs to be prepared to address those issues, because I think those questions will be coming.

Bob Coleman: We always hear that, and it’s always a concern. You mentioned, there has been some dribs and drabs of stories coming out. It seems to be escalating now, it used to be once or twice a month, and now it is weekly. That is not very flattering for borrowers and SBA lenders.

Kent Hoover: I also saw an op-ed from Entrepreneur by a Case Western Professor that addressed what Tom Coburn talked about a couple years ago on ‘Do we even need an SBA?’ His op-ed was to replace the 7(a) program. What I didn’t understand about it was that he went on for fifteen paragraphs of why the program isn’t needed then the last paragraph stated that the 7(a) program should be replaced by a program that serves the needs of 21st century businesses. So I don’t know what a program would look like that would serve the needs of 21st century businesses that is not the SBA loan programs.

Bob Coleman: I think it’s always going to be a fight, especially with the changeover in the committees. The Senate went from Democratic to Republican. The House has a new leader. It is constantly an education of not only the Senators and Representatives, but also to make sure their staff knows how important this program is for their districts.

Kent Hoover: On the House side, you basically have the same staff. And Chabot has been on the Committee before. To me it’s just a continuation of what it was like under Chairman Graves. On the Senate side, I decided to look at the number of hearings that have been held by the Senate Small Business Committee since David Vitter has become Chairman. I have counted nine hearings, seven of them have been in Louisiana. Vitter as you know is running for Governor of Louisiana so this statistics isn’t a coincidence. His focus is on his campaign for Governor, obviously.

Bob Coleman: That was an interesting switch in terms of him taking that year stint to embellish his resume and his credentials. So what’s the takeaway, you don’t see any major changes of approach from the Hill towards SBA? Is it fair to say there is still bi-partisan support for our program?

Kent Hoover: I think so, it almost seems the appropriators are more friendly towards SBA than the House Small Business Committee. They had issues with the SBA doing all of these new pilot programs and doing things that they didn’t authorize. That’s been going on for years. And they did the same thing this year. Usually the appropriators kind of ignore them. It’s nice, if you are going to have friends, it’s nice to have friends on the appropriations committees.

Bob Coleman: Hey Kent I really appreciate you coming on and giving us inside baseball of what is going on up on the Hill. I appreciate your insights and your great columns that you write in terms of very nice and good coverage small business and Main Street.

Kent Hoover: Thank you Bob.