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Statement of the Hon. Nydia Velazquez on Taking on More Risk: Examining the SBA’S Change to the 7(a) Lending Program Part I

The Small Business Administration’s 7(a) program is the agency’s flagship lending initiative. Under 7(a), SBA guarantees significant portions of loans, encouraging lenders to extend credit to small businesses that might not typically be able to obtain financing.

So far, in FY 23, the SBA has approved over 30,000 loans totaling more than $14.6 billion – proving just how integral the 7(a) program is to our nation’s entrepreneurial ecosystem.

7(a) loans strengthen local communities, create jobs, and move our economy forward. Given the critical nature of the 7(a) program, this committee must carefully consider and vet any significant changes.

Last month, SBA issued two final rulemakings that have substantial implications for the 7(a) program.

The affiliation rule loosens lending criteria, updates loan conditions, and eliminates various affiliation standards. While the second rule on SBLCs ends the SBA’s longstanding moratorium on licensing new SBLCs. In the final rule, SBA states that it can license and supervise three new SBLCs, and it is speculated that some –if, not all – of these new licenses will be granted to fintech companies.

SBA instituted these rules to address persistent gaps in access to capital as part of the Biden administration’s broader economic agenda. Increasing access to capital for underserved entrepreneurs has been and will remain a priority for me as the top Democrat on this committee.

However, I am apprehensive about the SBA’s decision to remove many of the longstanding guardrails and program requirements on loan criteria and affiliation standards that have served the 7(a) program well while also lifting its moratorium on the licensing of new SBLCs.

I am especially concerned by the possibility of the new SBLC licenses being granted to non-federally regulated fintechs with no experience in 7(a) program lending.

Researchers have highlighted that fintechs facilitated most of the significant fraud associated with the Paycheck Protection Program. I appreciate SBA taking this situation seriously and the steps the agency has taken thus far to hold the blatant actors responsible for their actions.

With that said, we would be doing a disservice to American small business owners by moving forward with changes that weaken and destabilize a highly successful program that has helped millions of entrepreneurs.

The last thing we want is for unintended consequences of sweeping changes – by rulemaking without detailed accompanying SOPs – to harm the future of this program, which is an essential tool for many small business owners and entrepreneurs.

And on the matter of SOPs, I remain concerned about policy changes being released late at night to everyone’s surprise. As many of us on this dais have indicated, it is alarming that major programmatic changes can come on a whim – no matter the administration. These continued changes to the incredibly important details are the reason we are taking our time to truly understand the impact they will have.

As SBA moves forward with these rule changes, this committee must ensure they are responsibly implemented and don’t negatively impact the 7(a) program and individual borrowers.
Ensuring that businesses owned by women, people of color, and underserved groups is an important goal that I share with Administrator Guzman.

Today, I look forward to hearing from Mr. Kelly and the steps SBA is taking to ensure these rules do not risk the integrity of the 7(a) Program.

I remain committed to filling the gaps in the market in a bipartisan and thoughtful way. The Small Business Committees in the House and the Senate have proven that we can work together to make a difference for our Main Street businesses.

Whether during a global crisis or hard fought SBIR reauthorization – we have always come together to put politics aside and do right by our nation’s job creators. I look forward to doing just that again and working with the SBA and my Committee colleagues in both the House and the Senate to find a solution.

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