Democrats Seek to Ensure Access to Capital for Small Businesses

May 17, 2017
Hearing examines SBA’s flagship 7(a) Loan Program 
 
Washington DC- At a hearing today before the House Small Business Committee, Democrats took a hard look at the government’s primary small business lending program, 7(a) loans. Over the years, these loans have provided the access to capital necessary to fund the dream ventures of countless entrepreneurs and small business owners. 
 
“If, as the saying goes, small businesses are the economy’s backbone, then the flow of capital is the lifeblood,” said Ranking Member, Rep. Nydia M. Velázquez (D-NY). “It is our duty on this committee to best serve America’s small businesses, protecting and securing access to capital is a mainstay.” 
 
As the government’s primary small business loan program, 7(a) loans seek to fill a unique gap often faced by small business owners and entrepreneurs looking to finance their dream venture. Since new ventures, and particularly start-ups are often high risk undertakings for conventional lenders, the 7(a) program was designed to mitigate risk by guaranteeing repayment. Partnering with private-sector lenders, the Small Business Administration (SBA) guarantees that if a borrower defaults, they will purchase the loan and the lender will receive a portion of the balance.   
 
According to past reports from the Office of the Inspector General (OIG) and Government Accountability Office (GAO), a lack of lender oversight has led to management challenges for the program. In particular, delegating approval authority to lenders makes it difficult for SBA to ensure that businesses struggling to secure capital elsewhere are prioritized for consideration. To fix this, Democrats called for greater resources to provide oversight. 
 
“Absent adequate oversight, I am concerned that the program’s resources may be unnecessarily strained -- potentially depriving other entrepreneurs of needed credit,” said Rep. Velázquez. “It is crucial that SBA designate the proper resources to ensure the program is prioritizing the needs of the small businesses that have trouble securing access to capital elsewhere.” 
 
Throughout the hearing, Democrats reaffirmed their commitment to the program’s intent—to provide loans to underserved and often overlooked small businesses. In addition to helping ventures that have been denied conventional loans, the 7(a) program exists to help woman, veteran, and minority owned-business secure capital. Democrats called on the SBA to increase their commitment grant loans to qualified minority-owned businesses. 
 
“While the overall number of 7(a) loans has increased, the percentage going to minority and women-owned firms has remained fairly consistent since 2010 -- and is still lower than before or during the recession,” said Rep. Velázquez. “This disparity is troubling. It must be addressed to enable job creation and economic growth, particularly in traditionally underserved communities.”
 
In his testimony, Mr. William Manger, Associate Administrator at the Office of Capital Access within the SBA highlighted the agency’s commitment to diversify the program. 
 
“As we work to recruit more lenders for our programs, we have stressed to our lending partners that we want to see more small-dollar loans being made to entrepreneurs,” said Mr.  Manger. “Our focus will remain on helping those who need capital most before anyone else - that includes our veterans, women- owned businesses, minority-owned businesses, rural communities and all of our emerging markets.”
 
While recent unprecedented program growth has been a boom for small businesses, it has also put a demand on resources. In 2014, a supplemental authorization of $1 billion was required to prevent a shutdown of the program. To prevent this from happening again, Velázquez led Democrats in calling on SBA to properly monitor loan volume. 
 
“With the prolific growth of the 7(a) program, it is imperative that this initiative functions efficiently and effectively,” said Rep. Velázquez. “It is crucial that SBA closely monitor loan volume -- and communicate to Congress in a timely manner concerns regarding reaching the cap.” 
 
In April 2017, Rep. Velázquez introduced a bill that would authorize the SBA Administrator to increase the 7(a) program authority by up to twenty percent upon notifying Congress. 
 
“Freezing the program due to an authorization cap only hampers innovation, growth and jobs,” said Rep. Velázquez. “When it comes to ensuring that our small business entrepreneurs have all the resources they need, we must be prepared for times of high demand for these loans.” 
 
“SBA’s 7(a) program is a cornerstone in the small business economy,” said Rep. Velázquez. “Throughout its existence, 7(a) loans have helped countless small ventures grow and thrive. Congress must work with SBA and lenders to ensure this program has the proper oversight to optimally serve America’s small businesses.” 
 
 
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