In a House Small Business Committee hearing Tuesday, members of both parties expressed concerns with the Small Business Administration’s decision to lift the moratorium on the number of nondepository lenders in the 7(a) program while loosening underwriting requirements.
Banks and other lenders provide loans to underserved small businesses through the 7(a) program. The number of nondepository institutions in the program has been capped at 14 institutions since 1982, but in two final rules issued last month, SBA removed both the cap and the nine-factor underwriting standard for 7(a) loans found in existing regulations. “Given the unacceptable levels of fraud that occurred in the SBA’s pandemic programs, I have serious concerns that the agency is not up to the task of taking on more responsibilities,” said Chairman Roger Williams (R-Texas).
Also, in a procedural notice issued Tuesday, SBA stated that it will require more robust underwriting criteria than provided in the final rules for 7(a) loans greater than $500,000. In those rules, SBA removed the nine-factor test for underwriting 7(a) loans, replacing it with a less stringent test. ABA had criticized SBA’s decision to remove the nine-factor test, which provided an important guardrail to ensure that nondepository institutions engaged in safe-and-sound 7(a) lending.
After Tuesday’s hearing, SBA issued a revised standard operating procedure that outlines critical requirements that lenders must follow to both obtain and maintain their SBA guarantees. The SOP is effective Aug. 1.