Two community bankers from American Bankers Association member banks today testified during a Senate hearing on the Small Business Administration’s 7(a) loan guarantee program, offering recommendations for regulatory changes to help boost small-business lending.
Itzel Sims, director of SBA lending for First Security Bank in Searcy, Arkansas, testified before the Senate Small Business Committee on behalf of her bank, the Arkansas Bankers Association and ABA. In her prepared remarks, Sims reiterated ABA’s support for the SBA’s efforts to expand credit access for small businesses and offered several recommendations to ensure that the 7(a) program remains financially stable while removing barriers to efficient and effective loan-making.
“We urge SBA to impose stronger underwriting standards on 7(a) loans, not grant additional SBLC licenses without a demonstrated need and without showing that the agency can effectively supervise new entrants, and improve the efficiency of the 7(a) Program by reinstating the franchise directory,” Sims said.
Sims also urged Congress to repeal Section 1071 of the Dodd-Frank Act, noting that while ABA supports the goals of enforcing fair lending laws and identifying opportunities for community development, Section 1071 and the CFPB’s implementing regulation “will make it harder for banks to serve small business customers.”
Tim Fitzgibbon, SVP at First National Bank in Ames, Iowa, testified on behalf of his institution and the Iowa Bankers Association. (First National Bank is also an ABA member.) He highlighted concerns stemming from the SBA’s 2023 decision to reduce underwriting standards and urged the SBA to “closely monitor the impact of its reduced underwriting standards on the borrowers it serves.”
“Risk in any loan program is primarily managed through sound underwriting policies,” Fitzgibbon said. “Prudent underwriting ensures equitable treatment for all applicants and is intended to be a good predictor of a borrower’s future success. In short, good underwriting protects the consumer along with the lender, and in the case of the government-backed SBA program, the taxpayer as well.”
Fitzgibbon also urged caution on the prospect of the SBA restarting its direct government lending program, noting that “[h]istory has shown that direct government lending can lead to expensive loan modifications, and even debt forgiveness, to mask nonperforming loans. Loan forgiveness does not manage debt, it simply passes the costs on to the taxpayer.”
Editor’s note: This story has been updated to correctly attribute the final quote to Fitzgibbon.
