Small Business Administration 7(a) Loan Guaranty Program

Robert Jay Dilger
Senior Specialist in American National Government

The Small Business Administration (SBA) administers several programs to support small businesses, including loan guaranty programs designed to encourage lenders to provide loans to small businesses “that might not otherwise obtain financing on reasonable terms and conditions.” The SBA’s 7(a) loan guaranty program is considered the agency’s flagship loan guaranty program. It is named from Section 7(a) of the Small Business Act of 1953 (P.L. 83-163, as amended), which authorized the SBA to provide business loans and loan guaranties to American small businesses. In FY2011, the SBA approved 53,706 7(a) loans amounting to more than $19.6 billion.

Congressional interest in the 7(a) loan program has increased in recent years because of increased concern that small businesses might be prevented from accessing sufficient capital to enable them to assist in the economic recovery.

This report opens with a discussion of the rationale provided for the 7(a) program; the program’s borrower and lender eligibility standards and program requirements; and program statistics, including loan volume, loss rates, use of the proceeds, borrower satisfaction, and borrower demographics.

It then examines congressional action taken during the 111th Congress to help small businesses gain greater access to capital. For example, P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA), provided $375 million to temporarily subsidize the 7(a) and 504/CDC loan guaranty programs’ fees and to increase the 7(a) program’s maximum loan guaranty percentage to 90%. P.L. 111-240, the Small Business Jobs Act of 2010, provided $505 million to extend the fee subsidies and 90% loan guaranty percentage through December 31, 2010; increased the program’s loan guaranty limit from $2 million to $5 million; and established an alternative size standard for the 7(a) and 504/CDC loan programs, which is designed to increase the number of small businesses that can participate in the two programs. Also, P.L. 111-322, the Continuing Appropriations and Surface Transportation Extensions Act, 2011, authorized the SBA to continue the fee subsidies and the 7(a) program’s 90% maximum loan guaranty percentage through March 4, 2011, or until available funding was exhausted (which occurred on January 3, 2011).

The report discusses three bills introduced during the 112th Congress that would affect the 7(a) program. S. 1828, a bill to increase small business lending, and for other purposes, would reinstate for a year following the date of its enactment the fee subsidies and 90% loan guaranty percentage for the 7(a) program which were originally authorized by ARRA. H.R. 2936, the Small Business Administration Express Loan Extension Act of 2011, would extend a one-year increase in the maximum loan amount for the SBAExpress program from $350,000 to $1 million for an additional year. That temporary increase was authorized by P.L. 111-240, the Small Business Jobs Act of 2010, and expired on September 26, 2011. S. 532, the Patriot Express Authorization Act of 2011, would provide statutory authorization for the Patriot Express Pilot Program and increase its loan guaranty percentages and its maximum loan amount from $500,000 to $1 million.

This report also examines issues raised concerning the SBA’s administration of the 7(a) program, including the oversight of 7(a) lenders and the program’s lack of outcome-based performance measures. It provides information concerning the 7(a) program’s SBAExpress, Patriot Express, Small Loan Advantage, and Community Advantage programs.


Date of Report: November 9, 2011
Number of Pages: 36
Order Number: R41146
Price: $29.95

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