Banking organizations discuss ways to strengthen SBA loan program at hearing

At a House Small Business Committee hearing this week, representatives from leading banking associations offered their support for proposed legislation that would strengthen the Small Business Administration (SBA) 7(a) Loan Program.

Patricia Husic, president and CEO of Centric Bank in Pennsylvania, testifying on behalf of the American Bankers Association (ABA), said SBA 7(a) loans are critical for small business owners, particularly when they are unable to obtain traditional loans.

“The SBA programs are an important part of business lending for many banks,” Husic said. “They help fill a critical gap, particularly for early stage businesses that need access to longer-term loans. The guarantee helps reduce the risk and capital required for banks and facilitates loans that might never have been made without this important level of support.”

Husic also applauded the recent introduction of the Small Business 7(a) Lending Oversight Reform Act of 2018 (H.R. 4743).

The bill seeks to strengthen SBA guaranteed lending programs by codifying the SBA Office of Credit Risk Management and Lender Oversight Committee and increasing transparency in the office’s budget. It would also provide guidelines for lender reviews and lender appeals rights.

Further, it would safeguard the 7 (a) program from abuse by codifying the SBA’s “Credit Elsewhere Test,” which requires lenders to document the reasons a given applicant cannot be served with conventional credit. Finally, it would seek to stabilize 7(a) program funding by allowing the SBA to lift the cap on general business loans by up to 15 percent of the limit if the cap is reached.

“This legislation, if enacted, would grant authority to the administrator to increase the amount for general business loans up to 115 percent of the fiscal year’s limit,” Husic, who is on the ABA’s board of directors, said. “This is an important measure that gives lenders added certainty that 7(a) Loan Program funds will be available so that they can meet the needs of their customers. It also ensures that small businesses will not be affected by temporary shutdowns in the program, leaving them unable to meet payroll, purchase needed inventory, or secure necessary equipment and supplies to continue their operations and help grow their local economies.”

The bill also takes steps to prevent fraud, increase efficiency, and improve the oversight of the program, Husic said.

A representative from the Independent Community Bankers Association (ICBA) also testified at the hearing in favor of targeted reforms to ensure the future success of the program.

“The Small Business Administration’s 7(a) loan program allows community banks to leverage their unique underwriting skills to more effectively serve the small businesses in their communities,” Cynthia Blankenship, chairwoman and corporate president of Bank of the West in Grapevine, Texas, said on behalf of ICBA. “A robust and sustainable 7(a) program with broad community bank participation will help small businesses thrive and create jobs, strengthening and extending the economic recovery.”

ICBA also supports the Small Business 7(a) Lending Oversight Reform Act (H.R. 4743) and looks forward to working with the committee to help shape the 7(a) bill.