The Small Business Administration’s 7(a) loan program has been a strong success and deserves continued congressional support, according to a North Carolina banker testifying today on behalf of the American Bankers Association before the House Small Business Subcommittee on Oversight. Ted Ashby, president and CEO of Surrey Bank and Trust in Mount Airy, N.C., also offered several suggestions for strengthening the 7(a) program.
Ashby highlighted the 7(a) program’s business plan requirements for startups, credit score software, extended amortizations, higher advance rates on secured loans, avoidance of balloon payments and underwriting based on cash flow. He also pointed out the efficiencies of SBA’s Express Loan Program and “delegated authority” for preferred lenders, which Surrey Bank is.
He focused his recommendations for improvement on SBA loan servicing. Specifically, limits on SBA loan consolidating and refinancing make extended additional loans more complex, and liquidation of loans can be unnecessarily delayed with duplicative work. He added that SBA limits on banks obtaining a guaranty poses a “disadvantage to small banks that are portfolio lenders attempting to meet the credit needs of customers in their market” and suggested a carve-out for portfolio lenders with less than $1 billion in assets.
“The SBA programs are an important part of business lending for many banks,” Ashby said. “It helps 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.”