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Washington, D.C.— Today, the House Small Business Subcommittee on Economic Growth, Tax, and Capital Access under Chair Andy Kim (D-NJ) held a hearing focused on the potential consequences of proposed fee increases to the 7(a) program on small lenders and borrowers under the Small Business Administration’s (SBA) budget proposal for 2020. 

“Today, we heard firsthand from people in communities like the ones I represent in New Jersey who help our small businesses secure loans through this important program. They are deeply concerned about the consequences that SBA’s proposed fee hikes could have on Main Street,” said Congressman Kim. “Let’s be clear, any increases in fees could result in fewer small businesses applying for and getting access to capital.”

The SBA’s flagship 7(a) lending program is designed to serve as an option for affordable capital for entrepreneurs who may have trouble securing a loan in the conventional market. Since the inception of the program, the SBA has partnered with financial institutions that make loans to small businesses. The SBA guarantees 50 to 90 percent of each 7(a) loan and offsets costs by charging lenders a one-time guaranty fee in addition to an annual ongoing service fee. These fees allow the program to achieve a zero-subsidy rate and operate without additional appropriations from Congress. The program supported an estimated 540,000 jobs in fiscal year 2018.  

The 7(a) program has achieved a zero subsidy rate every year since 2005, excluding the recovery years between 2010-2013 following the great recession. Despite this fact, the SBA has predicted that without changes to current law the program will not generate enough income in fiscal year 2020. To offset this shortfall, the SBA has requested authority to change the fee structure in the 7(a) program to cover the anticipated subsidy. The proposed fee increases have created concern that small borrowers and lenders will be adversely affected.  

“Small business borrowers may be dissuaded from considering a SBA loan in the future, resulting in a reduction in access to capital.” said Tony Wilkinson, CEO and President of NAGGL. “The benefits of having a program that is built on private-sector participants are numerous, but it also means there is a stark reality that the program needs to make sense financially for private-sector banks as well.  If the program does not make financial sense for lenders, then they will participate less in the 7(a) program and access to capital will be further restricted.”

“Small businesses are the driving force of our economy and the key to its success,” said Gail Jansen, Vice President of Business Services and Operations at Kinecta Federal Credit Union in Manhattan Beach, CA. “The ability for them to borrow and have improved access to capital is vital for job creation.  Although the Small Business Administration’s 7(a) program provides much-needed opportunities to established and fledgling businesses, increasing fees for the program will have an impact on both borrowers and small lenders.”

“In the end, if SBA’s current proposal is adopted by Congress, many small business borrowers may be dissuaded from considering a SBA loan and there will be a reduction in access to capital,” said Lynn Ozer, President of SBA Lending at Fulton Bank in Lancaster, PA.  “This negative consequence of SBA’s own proposal seems antithetical to SBA’s stated mission and the mission of the 7(a) program.”

“This is an important program that provides access to small business entrepreneurs who otherwise have no access to adequate financing and supports hundreds of thousands of jobs,” said Gordon Gray, Director of Fiscal Policy at American Action Forum. “As a taxpayer-funded program, it should be subject to continuous and rigorous oversight, and I appreciate the Committee’s attention to this program in today’s hearing.”

“We can all agree that the 7(a) lending program is the lifeblood for small businesses in communities across this country,” said Congressman Kim. “This Subcommittee is focused on finding ways to work across the aisle to find solutions that strengthen, not diminish, opportunities for our small firms to secure capital.” 

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