As part of the Small Business Access to Capital Coalition, ABA called on congressional leaders to address a potential funding gap that could bring operations of the Small Business Administration’s 7(a) business lending program to a halt next month. The groups warned that if the Office of Management and Budget fails to correct a “questionable federal credit subsidy rate estimate” contained in the presidential FY 2020 budget, the program will shut down on Oct. 1.
The OMB is responsible for making annual estimates of the net present value of expected future government outlays and receipts for general credit programs, including the SBA’s 7(a) program. However, the groups raised concerns that “OMB and SBA have failed to carry out their roles in the subsidy estimation process,” for the 7(a) lending program, as evidenced by significant downward re-estimates over the past nine years and questionable modeling practices, among other things. These flawed calculations “have unnecessarily driven up the cost of 7(a) loans, forcing borrowers to pay higher fees and lenders to raise interest rates to cover lender fees,” the groups noted.
Absent action from OMB, the groups urged Congress to consider “a modest appropriation” to support the program, in order to “avoid shifting the burden of an erroneous subsidy rate estimate onto the backs of small borrowers.”