The Senate recently confirmed President Trump's pick for administrator of the Small Business Administration, Linda McMahon. Compared to some of her colleagues, the confirmation hearing last week for SBA administrator was an admittedly quiet affair. But don't let the lack of fanfare fool you – McMahon and the SBA will be critical to achieving Trump's economic goals.
Simply put, SBA lending programs create American jobs.
At the heart of the SBA’s success is the 7(a) lending program, the agency’s largest public-private partnership with close to 2,000 participating private-sector financial institutions. These banks make private-sector loans to small business borrowers who are creditworthy and healthy but who fall through the very common lending gap for American small businesses.
In Fiscal Year 2016, financial institutions large and small provided a little over $22.9 billion in loans to small businesses through the 7(a) program. Unlike other federal programs that pass the cost on to the taxpayer, the 7(a) program is completely self-funded by the fees collected from lenders and borrowers. In fact, the 7(a) program has returned more than $1.55 billion- that’s with a “b”—to the Treasury since Fiscal Year 2010. In other words, the 7(a) program is currently a revenue stream for the federal government.
SBA 7(a) lending is a rare program where the federal agency has figured out how to get out of its own way and leverage private-sector expertise. Lenders know how to make loans. SBA does not pick “winners and losers” because SBA does not make the loans and its 7(a) program is open to any eligible, creditworthy small business borrower. The 7(a) program does not supplant the lending market; it supplements it. SBA conditionally guarantees a percentage of the loan, leaving a healthy level of risk on the lenders as an incentive to serve as prudent stewards of the program. With a portfolio that is performing very well, the SBA 7(a) program is hitting its stride.
Numbers don't lie. Over 500,000 jobs are created or retained annually thanks to the 7(a) program. In addition, there are intangible benefits that are often hard to measure, like increased tax revenue for the government and community growth driven by small business expansion in small towns across the country.
Despite these many positive outcomes, SBA lending programs have come under flawed scrutiny lately. This past December, the Washington Post’s Editorial Board attempted to dismiss SBA lending programs as no longer necessary as they once were thanks to recent bank modernizations; going so far as to say that the programs are merely kept around because positive Gallup polling deems them worthwhile.
Banks have certainly modernized internal processes since the creation of the SBA lending programs, with tools like credit scoring. But most small businesses would laugh to hear it said that capital is easily accessible today. Credit scoring and other modernizations make life easier for the banks; they don’t always open doors for borrowers.
Put simply, the issues that 7(a) loans solve for are the issues that every Main Street across the country is struggling with and which every Republican and Democrat wants to desperately find an answer to over the next four years—jobs, community rejuvenation, and opportunity.
And so two weeks ago, without the pageantry of the other confirmation hearings, surrounded by what was arguably the largest crowd ever seen in what is one of the smallest of the Senate’s Committee hearing rooms, McMahon gave testimony supportive of the nation’s small businesses that earned her the next challenge in her career. She will sit in a presidential Cabinet and have a front row seat to an administration already reframing politics as we know it, but she will also have at her fingertips a set of programs that have the potential to drive real job creation over the next four years. And there’s nothing quiet or small about that.
Tony Wilkinson is the CEO of the National Association of Government-Guaranteed Lenders.
The views expressed by contributors are their own and are not the views of The Hill.