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Wednesday, November 20, 2013

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. Its name is derived from Section 7(a) of the Small Business Act of 1953 (P.L. 83-163, as amended), which authorizes the SBA to provide business loans and loan guaranties to American small businesses.

In FY2013, the SBA approved 46,399 7(a) loans amounting to more than $17.8 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) 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 help small businesses further 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 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 111
th Congress to enhance small businesses’ access to capital, including providing more than $1.1 billion 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% (funding was exhausted on January 3, 2011); increasing the 7(a) program’s gross loan limit from $2 million to $5 million; and establishing an alternative size standard for the 7(a) and 504/CDC loan programs.

This report also examines legislation introduced during the 112
th Congress to continue the fee waivers and increase the 7(a) program’s SBAExpress and Patriot Express programs’ maximum loan amounts. President Obama’s request for $7 million to create a single, streamlined application form for most 7(a) loans is also discussed, as is the SBA’s announcement on September 24, 2013, that it was using its administrative authority to waive both the annual service fee and the upfront, one-time loan guaranty fee in FY2014 for all 7(a) loans in the amount of $150,000 or less. The SBA is also waiving the upfront, one-time loan guaranty fee for all veteran loans under the SBAExpress program (up to $350,000) from January 1, 2014, through the end of FY2014.

The Appendix to this report describes the 7(a) program’s SBAExpress, Patriot Express, Small Loan Advantage, and Community Advantage programs.

Date of Report: November 12, 2013
Number of Pages: 39
Order Number: R41146
Price: $29.95

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