ABA, trade groups urge congress to engage on SBA 7(a) program expansion

The American Bankers Association today joined the National Association of Government Guaranteed Lenders and other financial trade associations in urging Congress to engage quickly on the Small Business Administration’s proposals to lift the moratorium on the number of nondepository institutions that can make loans under the agency’s 7(a) program and make other revisions to the program. The 7(a) program, which is designed to meet the lending needs of underserved small businesses, currently caps at 14 the number of nondepository lenders that can participate.

In a joint letter, trade groups expressed concern that the proposed rules would expand the 7(a) program to a potentially unlimited number of nondepository lenders, which would be regulated solely by SBA, and would remove or modify long-existing prudent lending standards which have ensured the program’s integrity. The groups also expressed concern that SBA lacks the resources to take on responsibility for supervising additional nondepositories and that, if portfolio performance is not maintained because of relaxed lending requirements, Congress may need to dramatically increase fees for borrowers and lenders to cover the rising costs of the portfolio.

The letter came a day after the House Select Subcommittee on the Coronavirus Crisis issued a staff report that concluded that “Congress and the SBA should consider carefully whether unregulated businesses such as fintechs, many of which are not subject to the same regulations as financial institutions, should be permitted to play a leading role in future federal lending programs.” ABA President and CEO Rob Nichols added: “We urge the SBA to take the subcommittee’s warning into account before the agency finalizes its proposed rules.”