Washington, D.C.— Today, the House Small Business Committee held a hearing reviewing the Small Business Administration’s (SBA) Office of Capital Access (OCA). During the hearing, Ranking Member Nydia M. Velázquez (D-NY) focused on OCA efforts to prevent fraud and abuse, recent changes to the 7(a) program, and how Congress can continue to empower the office to reach more small businesses.
According to a 2022 Federal Reserve Small Business Credit Survey, nearly 60% of small employer firms reported not having their capital needs met. The SBA offers a range of programs managed by the OCA to help fill this gap. The OCA’s over $1 trillion portfolio includes traditional SBA lending initiatives like the 7(a) program and pandemic relief programs like the Paycheck Protection Program and Economic Injury Disaster Loan Program.
During the hearing, members examined ongoing SBA efforts to combat fraud and improve risk management systems. Over the course of the COVID-19 pandemic, the SBA disbursed approximately $1.2 trillion of economic aid. Last June, the SBA Office of the Inspector General issued a report that indicated SBA disbursed more than $200 billion in potentially fraudulent loans.
During the hearing, OCA Associate Administrator Katie Frost, testified on the steps the Biden-Harris Administration has taken to restore longstanding anti-fraud controls, put in place innovative new protections, and successfully reduce the potential for fraud, waste, and abuse across SBA’s current and future programs.
“As Administrator Guzman testified in March, SBA is in a better position than we ever have been to combat fraud, waste and abuse. SBA’s investments in technology including our new Risk Mitigation Framework ensures that every SBA loan is screened for fraud prior to disbursement,” said Associate Administrator Frost. “SBA has implemented GAO recommendations to improve SBA’s fraud prevention measures, and we work closely with the Inspector General and other law enforcement agencies to refer suspected fraud for investigation and prosecution.”
The hearing also focused on SBA’s awarding three new SBLC licenses to lending companies last year. Prior to 2023, SBA had placed a moratorium on licensing new SBLCs since 1982, as it believed it did not have the necessary resources to properly supervise any new entrants into the program.
“Given the significant level of fraud conducted by fintech lenders in the PPP, there has been strong bipartisan concern over two final rulemakings by the SBA last year, which weakened the underwriting criteria and loosened affiliation standards in the Agency’s core lending programs,” said Ranking Member Velázquez. “There are still outstanding questions regarding one SBLC award to Funding Circle and I look forward to working with the agency to resolve those. The SBA’s mission is too important to grant loan making authority to a lender that is not fully committed to its programs.”
During the hearing, Associate Administrator Frost also discussed the progress that SBA has made in increasing small dollar loans within the flagship 7(a) program through rule changes to expand lender participation and make it easier to do business with SBA.
“We now have 9 months of performance data after the implementation of these reforms, and I’m pleased to report on behalf of Administrator Guzman: the rules are working. In FY2024 to date, SBA has approved more than 22,000 7(a) loans under $150,000,” said Associate Administrator Frost. “That puts us on pace to nearly double the number of small loans approved in the final year of the previous administration. It’s also a 30% increase compared to this time last year. That’s 1,500 more businesses getting approved for a small loan every month than just a few years ago.”
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