Positive changes coming for small business lending program
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According to the latest survey from MetLife and the U.S Chamber of Commerce, it’s a great time to be a small business owner. Due to a variety of economic factors, small business optimism rose to its second highest level in history in May. In turn, this atmosphere fuels more jobs, higher wages, and a stronger economy. While this is great news, that’s not to say that small business owners have no obstacles standing in their way. Entrepreneurs and startups in particular often have a great idea but not enough capital to turn their ideas into a company.

While large businesses take on debt to raise capital, small firms regularly turn to conventional bank lending, but are often turned away because they do not have a proven track record. Without capital, many small businesses fail to succeed.

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That’s where the Small Business Administration’s 7(a) Loan Program steps in. The program partners with financial institutions to guarantee loans made to small business owners that fund their startup costs, equipment costs, or any other general business purpose.

Not surprisingly, it is the agency’s most popular program.

So, it is critical that the integrity and efficiency of the program is protected. As chairman and ranking member of the House Committee on Small Business, that’s why we introduced the Small Business 7(a) Lending Oversight Reform Act on Jan. 9, 2018, which President Trump signed into law this week.

Specifically, the legislation will strengthen SBA’s Office of Credit Risk Management – charged with overseeing SBA’s lending programs -- by outlining in statute the responsibilities of the office and the requirements of its director. Checks and balances within the program keep SBA accountable to the small business owners, lenders, and the American taxpayers.

It will also give SBA more authority to monitor the program and require it to perform a yearly risk analysis. Once finished, the report will be sent to Congress for review.

The reforms made in this bill will ensure the integrity of the program for small businesses that truly need the help of the Small Business Administration, while safeguarding taxpayer dollars.  And since we both believe that safeguarding taxpayer dollars is important, the legislation ensures that the program continues to run on a zero-subsidy cost to the taxpayer.

The bill also ensures the program can cope with any unexpectedly high loan demand in the future by giving the agency flexibility to make additional loans late in the year. This guarantees there is never a disruption in the flow of capital to businesses that count on this initiative for their financing needs. 

But don’t just take our word for it. Cindy Blankenship, who testified on behalf of the Independent Community Bankers of America during a House Small Business Committee hearing in January said, “Some years ago, my hair stylist, Kim, wanted to purchase the salon she worked at in Las Colinas, Texas, following the death of the owner. Without the help of a loan to purchase the salon, it likely would have closed and she would have been forced into the job market. Kim was not a good candidate for conventional credit because of the low value of the collateral. However, Bank of the West was able to offer her a 7(a) loan based on historical and projected cash flow, underwriting factors which the SBA program allows. The salon thrived and Kim hired eight additional stylists. Her cash flow was so strong that she paid off the loan early.”

For many small business owners who have been turned down for financing, SBA’s 7(a) Loan Program can make or break their company. It’s the difference between a small business expanding and creating jobs in their community and a business idea that can’t get off the ground. That’s why we need to make sure the program remains intact and continues to serve small business owners as it was intended to do.

Chabot is chairman of the Small Business Committee and Nydia M. Velázquez is ranking member of the Small Business Committee.