New Law Could Expand SBA 7(a) Small Business Loan Program

This federal bill will allow the U.S. Small Business Administration to approve additional funding, beyond its congressional mandate, on an as-needed basis. It will also increase regulatory oversight over lenders that broker SBA 7(a) loans.
Legislature increases SBA 7(A) Lending Capabilities

On June 5, the U.S. Senate passed a bill that gives the Small Business Administration (SBA) increased flexibility and oversight in lending practices related to the SBA's 7(a) loan program. Once the bill is signed into law, the SBA will be able to raise its lending cap by up to 15% above its authorization limit, if exceeded. This law could go into effect for 2018 and after.

Representatives Steve Chabot (R-Ohio) and Nydia Velazquez (D-N.Y.) introduced the bill in May 2017, in response to surging demand for SBA 7(a) loans. Back in 2015, the SBA hit its lending limit of $18.75 billion just months before the fiscal year end. This forced Congress to enact last-minute legislation to increase the SBA's lending limit for small businesses.

While the SBA did not reach its lending cap in 2017 (falling under the limit by around $2.1 billion), borrowers can expect more wiggle room for small-business applications if the amount of guaranteed lending flirts with the authorization limit again.

If the SBA had hit its authorized cap in 2017, this change could have provided an extra $4.125 billion in capacity, or an extra 15% over the 2017 cap of $27.5 billion. This could free up future expansion in fast-growing states. To illustrate the growth in SBA guarantees, we've provided a state-by-state summary of the total amounts of approved SBA 7(a) funding between 2016 and 2017.

State20162017Y/Y Change
Alaska $68,624,600 $46,513,100 -32%
Alabama $226,597,003 $211,319,800 -7%
Arkansas $224,225,223 $192,766,000 -14%
Arizona $611,111,249 $656,620,400 7%
California $4,034,818,117 $4,258,247,035 6%
Colorado $685,677,739 $766,104,904 12%
Connecticut $203,547,600 $208,204,800 2%
DC $30,324,400 $50,211,800 66%
Delaware $70,909,700 $50,363,300 -29%
Florida $1,566,758,032 $1,617,060,690 3%
Georgia $1,274,129,817 $1,273,253,583 0%
Hawaii $32,659,300 $45,768,800 40%
Iowa $147,401,410 $125,867,149 -15%
Idaho $143,719,900 $199,290,830 39%
Illinois $760,472,295 $863,362,819 14%
Indiana $424,032,456 $500,059,309 18%
Kansas $188,895,008 $181,850,514 -4%
Kentucky $188,606,602 $160,938,700 -15%
Louisiana $179,187,728 $180,112,055 1%
Massachusetts $390,818,550 $353,902,829 -9%
Maryland $277,062,975 $303,642,834 10%
Maine $67,134,740 $68,861,150 3%
Michigan $689,065,617 $782,216,744 14%
Minnesota $514,294,110 $523,126,554 2%
Missouri $450,310,531 $425,650,238 -5%
Mississippi $145,530,287 $158,786,300 9%
Montana $85,981,233 $93,854,819 9%
North Carolina $753,376,735 $768,272,225 2%
North Dakota $36,172,000 $36,871,043 2%
Nebraska $126,893,536 $121,906,850 -4%
New Hampshire $79,719,900 $82,573,700 4%
New Jersey $725,071,118 $769,928,201 6%
New Mexico $112,507,308 $126,241,800 12%
Nevada $217,103,200 $231,624,900 7%
New York $1,070,328,053 $1,172,553,592 10%
Ohio $894,224,730 $930,928,474 4%
Oklahoma $247,301,074 $248,976,571 1%
Oregon $352,847,400 $418,317,425 19%
Pennsylvania $648,620,050 $695,111,500 7%
Rhode Island $68,806,600 $62,562,210 -9%
South Carolina $250,264,735 $361,180,900 44%
South Dakota $50,132,661 $51,205,993 2%
Tennessee $307,874,000 $279,271,858 -9%
Texas $2,507,343,927 $2,580,183,256 3%
Utah $446,681,625 $444,553,527 0%
Virginia $361,044,731 $488,126,400 35%
Vermont $42,728,400 $30,599,800 -28%
Washington $744,579,720 $813,069,513 9%
Wisconsin $546,655,108 $503,196,057 -8%
West Virginia $31,718,400 $48,140,026 52%
Wyoming $43,793,756 $30,483,218 -30%
  • Includes data for 51 States and excludes U.S Virgin Islands, Puerto Rico and other American territories for which SBA 7(a) loans were obtained.

The SBA 7(a) loan program guarantees general business loans of up to $5 million for qualified small businesses across the U.S. These loans are issued by private lending institutions, and they're guaranteed for up to 85% of their value by the SBA, should the borrower default on the loan. The program was originally created to foster entrepreneurship within the U.S.

Small-business lending has risen rapidly over the past few years, thanks in part to booming business activity and historically low interest rates. Congress raised the authorization limit on 7(a) loans from $18.75 billion to $23.5 billion in 2015, and again in 2016 and 2017 to $26.5 billion and $27.5 billion respectively. The new bill represents a proactive effort to head off the rapid influx of SBA 7(a) applications.

SBA loan applicants may be subjected to even more heightened levels of scrutiny, potentially raising the bar for an already-strict approval process, as a result of other adjustments under this law. This is because some of the bill's provisions may lead to increased regulatory requirements for SBA 7(a) lenders. Although the bill increases the amount of funding available to SBA 7(a) loan applicants, it also increases SBA oversight for lenders that issue government-sponsored loans. The new bill expands the authority of the Office of Credit Risk Management, which oversees lenders issuing 7(a) loans. It also clarifies terms related to the test of eligibility for SBA 7(a) loan applicants.

Kenny Zhu

Kenny is a Junior Research Analyst at ValuePenguin, focusing on loans, business lending and other financial topics. He was previously an Investment Analyst at PFM Asset Management LLC, specializing in the investment of bond proceeds.

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