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The SBA's popular 7(a) program has reached its maximum funding authority. Banks may have to decide on providing short-term aid to small businesses that face delays getting loans.
July 23 -
If Congress fails to act swiftly, most lending supported by the SBA will shut down for much of the next two months. This would undermine recent strength in a vital component of the American economy.
July 21 -
Racial disparity in small-business loans remains glaring, despite some improvement. Lenders' unfamiliarity with African-American communities is part of the problem, but so is the need for financial education among prospective borrowers.
February 16 -
The Small Business Administration has introduced a new online credit scoring tool that can be used for most of its small business loans of $350,000 or less.
December 10
A day after the Small Business Administration was
In a voice vote Thursday, the Senate passed a bill adding $4.75 billion of funding authority to 7(a), which reached its current $18.75 billion ceiling Thursday afternoon. The House is expected to take up the measure Monday or Tuesday, Kelly McNabb, communications director for the House Small Business Committee said in an email to American Banker Friday.
The congressional action will undoubtedly cheer lenders and borrowers, who were well on the way to making the 2015 fiscal year, which ends Sept. 30, a record one for 7(a). The agency has already guaranteed more than 45,000 7(a) loans, Ann Marie Mehlum, SBA's associate administrator for capital access, said in a blog on the agency's website Thursday.
SBA officials said they welcomed the Senate action and were looking for a quick turnaround in the House.
"We continue to work with the House of Representatives and are confident that it will promptly pass similar legislation, allowing the SBA to continue supporting American small businesses as they grow and create jobs to strengthen the nation's economy," Benjamin Chang, the SBA's associate administrator for communications and public liaison, said in a statement emailed to American Banker on Friday.
Rep. Nydia Velazquez, D-N.Y.,
In hearings earlier this year on SBA's fiscal year 2016 budget, lawmakers indicated they planned to increase 7(a) funding authority to $23.5 billion. Now, a number of industry insiders are hoping Congress might go even higher, perhaps as high as $26 billion.
"This crisis has really heightened awareness of the need for adequate funding," Arne Monson, president of Holtmeyer & Monson in Memphis, Tenn., a servicing firm that supports SBA lending at more than 400 banks, said in an interview Friday.
"I've been working in SBA lending for 33 years, and this is the earliest in the fiscal year we've ever had" a funding crunch.
As late as the end of May, the 7(a) program still had $5 billion of funding remaining. As lending continued to increase, and lenders began to sense the increasing likelihood of a funding crunch, the pace of applications began accelerating. SBA received $3 billion in applications in the first three weeks of July alone, according to Chang.
The Senate bill includes a provision requiring SBA to submit regular reports to the House and the Senate including weekly totals of loans guaranteed, how much funding authority remains and an estimate of when the 7(a) program might run out of money.
Interestingly, it also requires the agency to detail how many of the loans it guarantees go into early default, how many of those borrowers are franchisees, and the steps the agency is taking to address nonperforming credits.
According to Monson, credit quality has been an issue for SBA in the past, with the delinquency rate for 7(a) loans running twice as high as the rate for conventional bank loans in some years. Recently, 7(a) delinquencies have trended much closer to the numbers for conventional loans, Monson said.
Indeed, SBA's overall asset quality appears to be holding up all right, despite the record level of guarantees. Through March 31 the halfway point of the fiscal year SBA reported charging off $509.3 million of 7(a) loans, about 0.72% of the program's $70.7 billion portfolio.
