SBA News Flash — SBA to Get Authority to Fine 7(a) Lenders up to $250,000, Flexibility to Exceed Budget Cap by 15%

January 10, 2018

By Bob Coleman
Editor, Coleman Report

SBA News Flash — SBA to Get Authority to Fine 7(a) Lenders up to $250,000, Flexibility to Exceed Budget Cap by 15%

Yesterday, Congressional Republicans and Democrats joined together and introduced legislation that will give SBA more regulatory authority over lenders.

The bill also eliminates the hard cap of budget authority by allowing SBA to exceed Congressionally mandated limits by 15%. (FY18 7(a) budget authority is $29 billion — SBA can now fund up to $33.3 billion for FY18.)

Lender Oversight

SBA will have the authority to fine lenders up to to $250,000 for SBA 7(a) program “violations.”

Logistics? A Director of of the Office of Credit Risk Management will be named. Also, a new SBA Lender Oversight Committee will be established.

“The Director may take a formal enforcement action against a 7(a) lender if the Director finds that the 7(a) lender has violated a requirement relating to credit elsewhere . . . or any requirement in a Standard Operating Procedures Manual or Policy Notice related to a program or function of the Office of Capital Access.”

Credit Elsewhere

Congress also further defines the credit available elsewhere standard.

For years, Congress, SBA and lenders have wrestled how best to ensure SBA lending programs are only used to fill the gap for Main Street entrepreneurs who cannot obtain a conventional small business loan.

The legislation offers clarity of Congressional intent that an SBA loan recipient must fall in one of the following categories.

  • Startups or small businesses less than two years old
  • Collateral coverage is less than 100% of loan amount
  • Risky industries defined by SBA, e.g. assume restaurants
  • The business needs a longer loan amortization to “assure the ability of the loan applicant to repay the debt from the actual or projected cash flow of the business”
  • “Any other factor relating to the particular credit application, as documented in detail by the lender, that cannot be overcome except through obtaining a Federal loan guarantee under prudent lending standards”

Bipartisan Support

Says House Small Business Chiar Steve Chabot (R-OH), “Many small business owners are ready to turn their dream into a reality but face obstacles to finance it. One of the many ways they are able to get the capital they need is the 7(a) Loan Program. This legislation will allow SBA to keep a close watch on the program to ensure it is running efficiently and effectively while also protecting taxpayer dollars.”

Says House Small Business Ranking Member Nydia Velázquez (D-NY), “The House Small Business Committee has a long tradition of working across the aisle to promote opportunity and job growth for America’s small businesses and, central to that effort, is ensuring entrepreneurs can access adequate capital to grow their operations. To that end, I’m proud to cosponsor the Small Business 7(a) Lending Oversight Reform Act, a package of bipartisan, commonsense reforms to increase the efficiency and reach of the program. Since its inception, the 7(a) initiative has provided new and existing ventures with financing to grow and create jobs in local communities. Under this legislation, SBA will have more tools to meet small businesses’ needs. I’m particularly pleased the bill includes provisions from my legislation allowing SBA to raise its 7(a) lending cap, so there’s no interruption in the flow of loans to small firms. This is a good bill and I look forward to working with Chairmen Chabot and Risch and Ranking Member Shaheen in seeing it enacted.”

Senate Small Business Committee Chairman Jim Risch (R-ID) says, “The 7(a) loan program has leveraged billions of dollars to help America’s small businesses thrive. By bolstering the SBA’s oversight office and providing the Administrator with flexibility to increase the program’s maximum lending authority in the event it would be reached, this bill will ensure the strength of the program into the future, guaranteeing that entrepreneurs will have access to the critical capital they need to build and grow their businesses. The bipartisan and bicameral support for this effort underscores just how important the 7(a) program, and the capital it provides, is to our nation’s small business owners. I look forward to working with my colleagues to advance this legislation.”

Ranking Member Shaheen Jeanne Shaheen (D-NH) concludes, “SBA’s 7(a) program provides an essential source of capital to help New Hampshire small businesses that don’t qualify for a traditional bank loan – at no cost to taxpayers. This bipartisan bill ensures that small businesses will not be hurt by a sudden shutdown of the program and left without an affordable source of capital to meet payroll, buy inventory, purchase equipment and create jobs in their community. It also takes important steps to improve oversight of the program to prevent fraud and increase efficiency. I look forward to working with my colleagues and SBA to make sure this program works for New Hampshire small businesses.”

Tip of the Hat to John Hand of ICBA for obtaining the proposed legislation that can be accessed here.