U.S. Rep. Nydia Velázquez (D-NY) introduced legislation this week that’s designed to create a clearer picture of risk and fraud in the Small Business Administration’s (SBA) flagship lending program.
The 7(a) Program is the SBA’s primary lending program intended to operate at zero-subsidy, costing American taxpayers no money, a status that has historically been a bipartisan priority for members of the Committee. However, an investigation into the program by Democrats on the House Committee on Small Business revealed a concerning rise of loan defaults.
The 7(a) Program Risk Oversight Act requires the SBA to break down program risk by loan size, by how long a loan has been on the books, by the age of the borrower’s business, and by the type of lender that originated the loan. Further, the legislation adds new reporting on enforcement actions and civil penalties tied to fraud, on loans the agency has determined were made fraudulently, and on loans that are falling behind on payments.
It also requires the SBA to post the report publicly within seven days of submitting it to Congress. The Small Business Act currently requires the SBA to conduct an annual risk analysis of the 7(a) Program and report the results to Congress. But that report is limited in scope, and the current law keeps it from the public. This has caused confusion and competing narratives among advocates, researchers, and lenders as to the cause of the rising defaults. This bill would change that.
“While the SBA is currently required to send Congress an annual report on the risk in the 7(a) program, our Committee’s investigation into the loan default rate makes clear that Congress and the public need more detailed information on the program’s performance to protect both the program and the small businesses that depend on it. Small businesses and taxpayers alike deserve that transparency,” said Velázquez, ranking member of the House Committee on Small Business.
The 7(a) Program Risk Oversight Act is endorsed by America’s Credit Unions, the Americans Bankers Association, and the Independent Community Bankers of America.
“We applaud Ranking Member Velázquez for her work to provide more transparency on the SBA’s 7(a) lending program. This bill will help ensure that Congress has the information needed to address specific issues with the program and that the program remains an effective tool for small businesses and lenders such as credit unions,” America’s Credit Unions Chief Advocacy Officer Kathleen Coulombe said.
Requiring the agency to disaggregate risk data, the legislation would help lawmakers, regulators, and the public spot trouble, earlier and target solutions.
“America’s banks are proud to support the 7(a) Loan Program, which provides vital loans to small businesses that would not otherwise have access to financing. We commend Congresswoman Velázquez for introducing the 7(a) Program Risk Oversight Act, which will strengthen the program by providing greater transparency in the outcome of 7(a) loans,” ABA President and CEO Rob Nichols said.