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Wednesday, October 24, 2012

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 FY2012, the SBA approved 44,377 7(a) loans amounting to more than $15.1 billion. Proceeds from 7(a) loans may be used to establish a new business or to assist in the operation, acquisition, or expansion of an existing business.

Congressional interest in the 7(a) loan guaranty program has increased in recent years because of concerns that small businesses might be prevented from accessing sufficient capital to enable them to assist in the economic recovery. Some, including President Obama, argue that the SBA should be provided additional resources to assist small businesses in acquiring capital necessary to start, continue, or expand operations with the expectation that in so doing small businesses will create jobs. Others worry about the long-term adverse economic effects of spending programs that increase the federal deficit. They advocate business tax reduction, reform of financial credit market regulation, and federal fiscal restraint as the best means to assist small business economic growth and job creation.

This report discusses 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 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 also 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 temporarily 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 7(a) program’s gross loan limit from $2 million to $5 million; and established an alternative size standard for the 7(a) and 504/CDC loan programs. P.L. 111-322, the Continuing Appropriations and Surface Transportation Extensions Act, 2011, authorized the SBA to continue the fee subsidies and 90% loan guaranty percentage through March 4, 2011, or until available funding was exhausted (which occurred on January 3, 2011).

This report also examines 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 ARRA’s fee subsidies and 90% loan guaranty percentage for the 7(a) program. 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 expired on September 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.

Information concerning the 7(a) program’s SBAExpress, Patriot Express, Small Loan Advantage, and Community Advantage programs is also provided.26, 2011. S. 532, the Patriot Express Authorization Act of 2011, 

Date of Report: October 11, 2012
Number of Pages: 38
Order Number: R41146
Price: $29.95

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