Small Business Administration 7(a) Loan
Guaranty Program
Robert Jay Dilger
Senior Specialist in American National Government
February 12, 2015
Congressional Research Service
7-5700
www.crs.gov
R41146
Small Business Administration 7(a) Loan Guaranty Program
Summary
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 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 FY2014, the SBA approved 52,044 7(a) loans totaling $19.2 billion. The average approved
7(a) loan amount was $368,737. 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, financial credit market reforms, and 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 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.
In addition, the report surveys congressional action taken during the 111th Congress to enhance
small businesses’ access to capital, including the providing more than $1.1 billion to temporarily
subsidize the 7(a) and 504/Certified Development Companies (CDC) loan guaranty programs’
fees and temporarily increase the 7(a) program’s maximum loan guaranty percentage to 90%
(funding was exhausted on January 3, 2011); raising 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 112th Congress to continue the fee
waivers and increase the 7(a) program’s SBAExpress and recently discontinued Patriot Express
programs’ maximum loan amounts. It discusses the Obama Administration’s decision to waive
the up-front loan guaranty fee and ongoing servicing fee for 7(a) loans of $150,000 or less
approved in FY2014 and FY2015; the up-front, 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
FY2015 (called the Veterans Advantage Program); and 50% of the up-front loan guaranty fee on
all non-SBAExpress 7(a) loans to veterans exceeding $150,000 in FY2015.
The Appendix to this report provides a brief description of the 7(a) program’s SBAExpress,
Export Express, and Community Advantage programs.
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Small Business Administration 7(a) Loan Guaranty Program
Contents
Small Business Administration Loan Guaranty Programs ............................................................... 1
Borrower Eligibility Standards and Program Requirements ............................................................ 4
Borrower Eligibility Standards .................................................................................................. 4
Borrower Program Requirements .............................................................................................. 5
Use of Proceeds ................................................................................................................... 5
Loan Amounts ..................................................................................................................... 5
Loan Terms, Interest Rate, and Collateral ........................................................................... 6
Lender Eligibility Standards and Program Requirements ................................................................ 7
Lender Eligibility Standards ...................................................................................................... 7
CLP and PLP Lenders................................................................................................................ 8
Lender Program Requirements .................................................................................................. 9
The Application Process ...................................................................................................... 9
SBA Guaranty and Servicing Fees .................................................................................... 14
Lender Packaging, Servicing, and Other Fees .................................................................. 16
Program Statistics .......................................................................................................................... 17
Loan Volume ............................................................................................................................ 17
Appropriations for Loan Subsidy Costs .................................................................................. 19
Administrative Expenses ......................................................................................................... 20
Use of Proceeds and Borrower Satisfaction ............................................................................ 21
Borrower Demographics ......................................................................................................... 21
Congressional Issues ...................................................................................................................... 22
Access to Capital ..................................................................................................................... 22
Program Administration .......................................................................................................... 23
Oversight of 7(a) Lenders ................................................................................................. 24
Outcome-Oriented Performance Measures ....................................................................... 29
Legislative Activity During the 111th Congress ............................................................................. 30
The Obama Administration’s Proposals .................................................................................. 30
Arguments for Increasing the SBA’s Maximum Loan Limits ........................................... 31
Arguments Against Increasing the SBA’s Maximum Loan Limits ................................... 31
P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA) ......................... 32
P.L. 111-240, the Small Business Jobs Act of 2010 ................................................................. 32
Legislative Activity During the 112th Congress ............................................................................. 33
Legislative Activity During the 113th Congress ............................................................................. 33
Concluding Observations ............................................................................................................... 34
Tables
Table 1. SBA Annual Service and Guaranty Fees, FY2013-FY2015 ............................................ 15
Table 2. 7(a) Loan Guaranty Program, Loan Volume, FY2007-FY2014 ...................................... 18
Table 3. Business Loan Credit Subsidies, 7(a) and 504/CDC Loan Guaranty Programs,
FY2007-FY2016 ......................................................................................................................... 20
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Appendixes
Appendix. 7(a) Specialized Programs............................................................................................ 36
Contacts
Author Contact Information........................................................................................................... 40
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Small Business Administration 7(a) Loan Guaranty Program
Small Business Administration Loan
Guaranty Programs
The Small Business Administration (SBA) administers programs to support small businesses,
including loan guaranty programs to encourage lenders to provide loans to small businesses “that
might not otherwise obtain financing on reasonable terms and conditions.”1 The SBA’s 7(a) loan
guaranty program is considered the agency’s flagship loan program.2 It 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 to American small businesses.
The SBA also administers several 7(a) subprograms that offer streamlined and expedited loan
procedures for particular groups of borrowers, including the SBAExpress, Small Loan Advantage,
and Community Advantage Pilot programs (see the Appendix for additional details). Although
these subprograms have their own distinguishing eligibility requirements, terms, and benefits,
they operate under the 7(a) program’s authorization.3
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. Specific uses include to acquire land (by
purchase or lease); improve a site (e.g., grading, streets, parking lots, and landscaping); purchase,
convert, expand, or renovate one or more existing buildings; construct one or more new
buildings; acquire (by purchase or lease) and install fixed assets; purchase inventory, supplies,
and raw materials; finance working capital; and refinance certain outstanding debts.4
In FY2014, the SBA approved 52,044 7(a) loans totaling $19.2 billion.5 As will be discussed, the
total number and amount of SBA 7(a) loans approved (and actually disbursed) declined in
FY2008 and FY2009, increased during FY2010 and FY2011, declined somewhat in FY2012, and
increased in FY2013 and FY2014.
Historically, one of the justifications presented for funding the SBA’s loan guaranty programs has
been that small businesses can be at a disadvantage, compared with other businesses, when trying
1 U.S. Small Business Administration (SBA), Fiscal Year 2010 Congressional Budget Justification, p. 30.
2 U.S. Congress, House Committee on Small Business, Subcommittee on Finance and Tax, Subcommittee Hearing on
Improving the SBA’s Access to Capital Programs for Our Nation’s Small Business, 110th Cong., 2nd sess., March 5,
2008, H.Hrg. 110-76 (Washington: GPO, 2008), p. 2.
3 SBA, “Express and Pilot Programs,” at http://www.sba.gov/content/express-programs. The SBA also administers four
special purpose loan guaranty programs that address particular business needs: the Community Adjustment and
Investment Program (CAIP), CAPLines Program, Employee Trusts Program, and Pollution Control Program. The
Pollution Control Program is currently not funded. See SBA, “Special Purpose Loans Program,” at http://www.sba.gov/
category/navigation-structure/loans-grants/small-business-loans/sba-loan-programs/7a-loan-program/special-purpose-
loans-program.
4 13 C.F.R. §120.120.
5 SBA, “SBA Lending Statistics for Major Programs (as of 9/30/2014),” at http://www.sba.gov/sites/default/files/
aboutsbaarticle/WebsiteReport_asof9_30_2014.pdf. The number of 7(a) loans approved annually is typically about
10% to 20% higher than the number of loans disbursed (e.g., some borrowers decide not to accept the loan or there is a
change in business ownership). The amount of 7(a) loans approved annually is typically about 10% to 15% higher than
the amount disbursed. In FY2013, the SBA approved 46,399 7(a) loans amounting to more than $17.8 billion. In
FY2012, the SBA approved 44,377 7(a) loans amounting to more than $15.1 billion.
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Small Business Administration 7(a) Loan Guaranty Program
to obtain access to sufficient capital and credit.6 Congressional interest in the 7(a) loan 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 the proceeds, borrower satisfaction, and borrower demographics. It 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 then surveys congressional action taken during the 111th Congress to provide the SBA
additional resources 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 the SBA an additional $730 million, including $375 million to
temporarily subsidize the 7(a) and 504/ Certified Development Companies
(CDC) loan guaranty programs’ fees ($299 million) and to temporarily increase
the 7(a) program’s maximum loan guaranty percentage to 90% ($76 million).7
• P.L. 111-240, the Small Business Jobs Act of 2010, provided $505 million (plus
$5 million for administrative expenses) 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 to enable more small
businesses to qualify for assistance.
• 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).
In addition, this report discusses three bills introduced during the 112th Congress that would have
changed the 7(a) program. S. 1828, a bill to increase small business lending (and for other
purposes) would have reinstated for one year following the date of its enactment the fee subsidies
for the 7(a) and 504/CDC loan guaranty programs and the 90% loan guaranty percentage for the
6 U.S. Government Accountability Office (GAO), Small Business Administration: 7(a) Loan Program Needs
Additional Performance Measures, GAO-08-226T, November 1, 2007, pp. 3, 9-11, at http://www.gao.gov/new.items/
d08226t.pdf; and Veronique de Rugy, Why the Small Business Administration’s Loan Programs Should Be Abolished,
American Enterprise Institute for Public Policy Research, AEI Working Paper #126, April 13, 2006, at
http://www.aei.org/files/2006/04/13/20060414_wp126.pdf. Proponents of federal funding for the SBA’s loan guarantee
programs also argue that small businesses can promote competitive markets. See P.L. 83-163, §2(a), as amended; and
15 U.S.C. §631a.
7 SBA, “Recovery Act Agency Plan,” May 15, 2009, at http://archive.sba.gov/idc/groups/public/documents/
sba_homepage/sba_recovery_act_plan.pdf.
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7(a) program, which were originally authorized by ARRA. H.R. 2936, the Small Business
Administration Express Loan Extension Act of 2011, would have extended 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 and expired on
September 27, 2011. S. 532, the Patriot Express Authorization Act of 2011, would have provided
statutory authorization for the Patriot Express Pilot Program and increased its loan guaranty
percentages and its maximum loan amount from $500,000 to $1 million. The Patriot Express Pilot
Program was subsequently discontinued by the SBA on December 31, 2013.
This report also discusses the Obama Administration’s decision to waive the up-front loan
guaranty fee and ongoing servicing fee for 7(a) loans of $150,000 or less approved in FY2014
and FY2015. H.R. 2462, the Small Business Opportunity Acceleration Act of 2013, introduced on
June 20, 2013, and referred to the House Committee on Small Business, would have made this
fee waiver permanent.
In addition, the Administration has decided to waive the up-front, 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 FY2015 (called the SBA Veterans Advantage Program).8 S. 2143, the Veterans
Entrepreneurship Act, introduced on March 13, 2014, and referred to the Senate Committee on
Small Business and Entrepreneurship, would have made this fee waiver permanent. P.L. 113-235,
the Consolidated and Further Continuing Appropriations Act, 2015, provided statutory
authorization to waive the 7(a) SBAExpress program’s guarantee fee for veterans (and their
spouses) in FY2015.
The Administration is also waiving 50% of the up-front loan guaranty fee on all non-SBAExpress
7(a) loans to veterans exceeding $150,000 in FY2015.9
The Appendix to this report provides a brief description of the 7(a) program’s SBAExpress,
Export Express, and Community Advantage programs.
8 The small business must be owned and controlled (51%+) by one or more of the following groups: veteran, active
duty military in the Transition Assistance Program, reservist or National Guard member, a spouse of any of these
groups, or a widowed spouse of a service member or veteran who died during service or of a service-connected
disability.
9 SBA, “SBA Information Notice: SBA Veterans Advantage – Renewal and Expansion of Fee Relief,” September 19,
2014, at http://www.sba.gov/sites/default/files/lender_notices/5000-1319.pdf.
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Small Business Administration 7(a) Loan Guaranty Program
Borrower Eligibility Standards and Program
Requirements
Borrower Eligibility Standards
To be eligible for an SBA business loan, a small business applicant must
• be located in the United States;
• be a for-profit operating business (except for loans to eligible passive
companies);
• qualify as small under the SBA’s size requirements;10
• demonstrate a need for the desired credit; and
• be certified by a lender that the desired credit is unavailable to the applicant on
reasonable terms and conditions from nonfederal sources without SBA
assistance.11
To qualify for an SBA 7(a) loan, applicants must be creditworthy and able to reasonably assure
repayment. SBA requires lenders to consider the strength of the business and the applicant’s
• character, reputation, and credit history;
• experience and depth of management;
• past earnings, projected cash flow, and future prospects;
• ability to repay the loan with earnings from the business;
• sufficient invested equity to operate on a sound financial basis;
• potential for long-term success;
• nature and value of collateral (although inadequate collateral will not be the sole
reason for denial of a loan request); and
• affiliates’ effect on the applicant’s repayment ability.12
10 For further analysis, see CRS Report R40860, Small Business Size Standards: A Historical Analysis of Contemporary
Issues, by Robert Jay Dilger.
11 13 C.F.R. §120.100; and 13 C.F.R. §120.101. A list of ineligible businesses, such as nonprofit businesses, insurance
companies, and businesses deriving more than one-third of gross annual revenue from legal gambling activities, is
contained in 13 C.F.R. §120.110.
12 13 C.F.R. §120.150.
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Borrower Program Requirements
Use of Proceeds
Borrowers may use 7(a) loan proceeds to establish a new business or to assist in the operation,
acquisition, or expansion of an existing business. 7(a) loan proceeds may be used to
• acquire land (by purchase or lease);
• improve a site (e.g., grading, streets, parking lots, landscaping), including up to
5% for community improvements such as curbs and sidewalks;
• purchase one or more existing buildings;
• convert, expand, or renovate one or more existing buildings;
• construct one or more new buildings;
• acquire (by purchase or lease) and install fixed assets;
• purchase inventory, supplies, and raw materials;
• finance working capital; and
• refinance certain outstanding debts.13
Borrowers are prohibited from using 7(a) loan proceeds to
• refinance existing debt where the lender is in a position to sustain a loss and the
SBA would take over that loss through refinancing;
• effect a partial change of business ownership or a change that will not benefit the
business;
• permit the reimbursement of funds owed to any owner, including any equity
injection or injection of capital for the business’s continuance until the loan
supported by the SBA is disbursed;
• repay delinquent state or federal withholding taxes or other funds that should be
held in trust or escrow; or
• pay for a non-sound business purpose.14
Loan Amounts
As mentioned previously, P.L. 111-240 increased the 7(a) program’s maximum gross loan amount
for any one 7(a) loan from $2 million to $5 million (up to $3.75 million maximum guaranty). In
FY2014, the average approved 7(a) loan amount was $368,737.15
13 13 C.F.R. §120.120.
14 13 C.F.R. §120.130; and SBA, “Use of 7(a) Loan Proceeds,” at http://www.sba.gov/content/use-7a-loan-proceeds.
15 SBA, “SBA Lending Statistics for Major Programs (as of 9/30/2014),” at http://www.sba.gov/sites/default/files/
aboutsbaarticle/WebsiteReport_asof9_30_2014.pdf.
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Small Business Administration 7(a) Loan Guaranty Program
Loan Terms, Interest Rate, and Collateral
Loan Terms
A 7(a) loan is required to have the shortest appropriate term, depending upon the borrower’s
ability to repay. The maximum term is 10 years, unless the loan finances or refinances real estate
or equipment with a useful life exceeding 10 years. In that case, the loan term can be up to 25
years, including extensions.16
Interest Rate
Lenders are allowed to charge borrowers “a reasonable fixed interest rate” or, with the SBA’s
approval, a variable interest rate.17 The SBA uses a multistep formula to determine the maximum
allowable fixed interest rate and periodically publishes that rate and the maximum allowable
variable interest rate in the Federal Register.18
The maximum allowable fixed interest rates in February 2015 for 7(a) loans with maturities of
less than seven years are 7.0% for loans greater than $50,000, 8.0% for loans over $25,000 but
not exceeding $50,000, and 9.0% for loans of $25,000 or less. The maximum allowable fixed
interest rates in February 2015 for 7(a) loans with maturities of seven years or more are 7.5% for
loans greater than $50,000, 8.5% for loans over $25,000 but not exceeding $50,000, and 9.5% for
loans of $25,000 or less.19
The 7(a) program’s maximum allowable variable interest rate may be pegged to the lowest prime
rate (3.25% in February 2015), the 30-day LIBOR rate plus 300 basis points (3.17% in February
2015), or the SBA optional peg rate (2.625% in the second quarter of FY2015).20 The optional
peg rate is a weighted average of rates the federal government pays for loans with maturities
similar to the average SBA loan.21
16 13 C.F.R. §120.212. A portion of a 7(a) loan used to acquire or improve real property may have a term of 25 years
plus an additional period needed to complete the construction or improvements.
17 13 C.F.R. §120.213.
18 For fixed interest rates, the SBA first calculates a fixed base rate using the 30 day London Interbank Offered Rate
(LIBOR) in effect on the first business day of the month as published in a national financial newspaper published each
business day, adds to that 300 basis points (3%) and the average of the 5-year and 10-year LIBOR swap rates in effect
on the first business day of the month as published in a national financial newspaper published each business day. For
7(a) fixed loans with maturities of less than seven years, the SBA adds 2.25% to the fixed base rate to arrive at the
maximum allowable fixed rate. For 7(a) fixed loans with maturities of seven years or longer, the SBA adds 2.75% to
the fixed base rate to arrive at the maximum allowable fixed rate. Lenders may increase the maximum fixed interest
rate allowed by an additional 1% if the fixed rate loan is over $25,000 but not exceeding $50,000, and by an additional
2% if the fixed rate loan is $25,000 or less. See SBA, “Business Loan Program Maximum Allowable Fixed Rate,” 74
Federal Register 50263-50264, September 30, 2009.
19 Colson Services Corp., “SBA Base Rates,” New York, at http://www.colsonservices.com/main/news.shtml.
20 Ibid.
21 SBA, “7(a) Loan Program: Terms and Conditions,” at http://www.sba.gov/content/7a-terms-conditions.
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Collateral
For 7(a) loans of $25,000 or less, the SBA does not require lenders to take collateral. For 7(a)
loans exceeding $25,000 to $350,000, the lender must follow the collateral policies and
procedures that it has established and implemented for its similarly sized non-SBA-guaranteed
commercial loans. However, the lender must, at a minimum, obtain a first lien on assets financed
with loan proceeds, and a lien on all of the applicant’s fixed assets to secure the loan. For 7(a)
loans exceeding $350,000, the SBA requires lenders to collateralize the loan to the maximum
extent possible up to the loan amount.22 If business assets do not fully secure the loan, the lender
must take available equity in the principal’s personal real estate (residential and investment) as
collateral.23
7(a) loans are considered “fully secured” if the lender has taken security interests in all available
fixed assets with a combined “net book value” up to the loan amount.24 The SBA directs lenders
to not decline a loan solely on the basis of inadequate collateral because “one of the primary
reasons lenders use the SBA-guaranteed program is for those Small Business Applicants that
demonstrate repayment ability but lack adequate collateral to fully repay the loan if the loan
defaults.”25
Lender Eligibility Standards and
Program Requirements
Lender Eligibility Standards
Lenders must have a continuing ability to evaluate, process, close, disburse, service, and liquidate
small business loans; be open to the public for the making of such loans (and not be a financing
subsidiary, engaged primarily in financing the operations of an affiliate); have continuing good
character and reputation; and be supervised and examined by a state or federal regulatory
authority, satisfactory to the SBA. They must also maintain satisfactory performance, as
determined by the SBA through on-site review/examination assessments, historical performance
measures (such as default rate, purchase rate, and loss rate), and loan volume to the extent that it
affects performance measures.26 In FY2014, 2,244 lenders provided 7(a) loans.27
22 SBA, “SOP 50 10 5(G): Lender and Development Company Loan Programs,” (effective October 1, 2014), p. 162, at
https://www.sba.gov/sites/default/files/sops/SOP%2050%2010%205%20G%20FINALWEB%20VERSION%20-
%20CLEAN%20Eff,%2010-1-2014.pdf.
23 Ibid.
24 Ibid., p. 161. “Net book value” is defined as an asset’s original price minus depreciation and amortization. New
machinery and equipment may be valued at 75% of Net Book Value, or 80% with an Orderly Liquidation Appraisal
minus any prior liens for the calculation of “fully-secured.” Used or existing machinery and equipment may be valued
at 50% of Net Book Value or 80% with an Orderly Liquidation Appraisal minus any prior liens for the calculation of
“fully-secured.” Real estate can be valued supported at 85% of the value for the calculation of “fully-secured.” If the
loan will be secured by the fixed assets and the valuation of fixed assets is greater than their depreciated value (net
book value), an independent appraisal by a qualified individual must be obtained by the lender to support the higher
valuation.
25 Ibid.
26 13 C.F.R. §120.410.
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Small Business Administration 7(a) Loan Guaranty Program
CLP and PLP Lenders
The SBA established the Certified Lenders Program (CLP) on February 26, 1979, initially on a
six-month pilot basis.28 It is designed to provide expeditious service on 7(a) loan applications
received from lenders who have a successful SBA lending track record and a thorough
understanding of SBA policies and procedures. CLP lenders submit the same application forms
and documentation required of standard 7(a) loan packages. They must also prepare a draft of the
SBA Authorization (of loan guaranty approval). The SBA loan reviewer “relies heavily on the
information the lender provides.”29 If the lender’s presentation is not adequate for CLP
processing, the SBA may convert the application from CLP processing to standard loan
processing. In recent years, CLP lenders have approved about 1.0% of the number of 7(a) loans
approved each year and 2.4% of the amount of 7(a) loans approved each year.30
The SBA started the Preferred Lenders Program (PLP) on March 1, 1983, initially on a pilot
basis.31 It is designed to streamline the procedures necessary to provide financial assistance to
small businesses by delegating the final credit decision and most servicing and liquidation
authority and responsibility to carefully selected PLP lenders.32 PLP loan approvals are subject
only to a brief eligibility review and the assignment of a loan number by SBA.33 PLP lenders draft
the SBA Authorization (of loan guaranty approval) without the SBA’s review, and execute it on
behalf of the SBA. In recent years, PLP lenders have approved about 27.2% of the number of 7(a)
loans approved each year and about 56.8% of the amount of 7(a) loans approved each year.34
PLP lenders must comply with all of the SBA’s business loan eligibility requirements, credit
policies, and procedures. The PLP lender is required to stay informed on, and apply, all of the
SBA’s loan program requirements. They must also complete and retain in the lender’s file all
forms and documents required of standard 7(a) loan packages.35
(...continued)
27 SBA, Fiscal Year 2016 Congressional Budget Justification and FY 2014 Annual Performance Report, p. 42. There
were 2,345 active 7(a) lenders in FY2013, and 2,476 active 7(a) lenders in FY2012.
28 U.S. Congress, Senate Select Committee on Small Business, SBA Loan Oversight, hearing on SBA loan oversight,
96th Cong., 1st sess., September 18, 1997 (Washington: GPO, 1997), p. 31; and U.S. General Accounting Office, SBA’s
Pilot Programs to Improve Guaranty Loan Procedures Need Further Development, CED-81-25, February 2, 1981, p.
7, at http://www.gao.gov/assets/140/131789.pdf; and U.S. General Accounting Office, SBA’s Certified Lenders
Program Falls Short of Expectations, RCED-83-99, June 7, 1983, p. 1, at http://www.gao.gov/assets/150/140126.pdf.
29 SBA, “SOP 50 10 5(G): Lender and Development Company Loan Programs,” (effective October 1, 2014), p. 19, at
https://www.sba.gov/sites/default/files/sops/SOP%2050%2010%205%20G%20FINALWEB%20VERSION%20-
%20CLEAN%20Eff,%2010-1-2014.pdf.
30 SBA, Office of Congressional and Legislative Affairs, correspondence with the author, November 21, 2013.
31 U.S. General Accounting Office, SBA’s Certified Lenders Program Falls Short of Expectations, RCED-83-99, June
7, 1983, p. 3, at http://www.gao.gov/assets/150/140126.pdf.
32 U.S. General Accounting Office, Small Business: Analysis of SBA’s Preferred Lenders Program, GAO/RCED-92-
124, May 15, 1992, pp. 1-4, http://www.gao.gov/assets/220/216229.pdf.
33 SBA, “SOP 50 10 5(G): Lender and Development Company Loan Programs,” (effective October 1, 2014), p. 21, at
https://www.sba.gov/sites/default/files/sops/SOP%2050%2010%205%20G%20FINALWEB%20VERSION%20-
%20CLEAN%20Eff,%2010-1-2014.pdf.
34 PLP lenders approved 12,570 7(a) loans totaling $11.7 billion in FY2014, 13,457 7(a) loans totaling $10.4 billion in
FY2013, 12,472 7(a) loans totaling $8.4 billion in FY2012, and 15,228 7(a) loans totaling $10.7 billion in FY2011. See
SBA, “SBA Lending Statistics for Major Programs (as of 9/30/2014),” at https://www.sba.gov/sites/default/files/
aboutsbaarticle/WebsiteReport_asof9_30_2014.pdf.
35 SBA, “SOP 50 10 5(G): Lender and Development Company Loan Programs,” (effective October 1, 2014), p. 28, at
(continued...)
Congressional Research Service
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Small Business Administration 7(a) Loan Guaranty Program
Lender Program Requirements
The Application Process
Borrowers submit applications for a 7(a) business loan to private lenders. The lender reviews the
application and decides if it merits a loan on its own or if it has some weaknesses which, in the
lender’s opinion, do not meet standard, conventional underwriting guidelines and require
additional support in the form of an SBA guaranty. The SBA guaranty assures the lender that if
the borrower does not repay the loan and the lender has adhered to all applicable regulations
concerning the loan, the SBA will reimburse the lender for its loss, up to the percentage of the
SBA’s guaranty. The small business borrowing the money remains obligated for the full amount
due.36
If the lender determines that it is willing to provide the loan, but only with an SBA guaranty, it
submits the application for approval to the SBA through the SBA’s E-Tran (Electronic Loan
Processing/Servicing) website (which is the SBA’s preferred method of submission), by secured
electronic file transfer, or, if the attachments are less than 9MB, by email to the Standard 7(a)
Loan Guaranty Processing Center (LGPC). The LGPC has two physical locations: Citrus Heights,
CA, and Hazard, KY.37 This center has responsibility for processing 7(a) loan guaranty
applications for lenders who do not have delegated authority to make 7(a) loans without the
SBA’s final approval.38 The SBA has authorized PLP and express lenders to make credit decisions
without SBA review prior to loan approval. However, the PLP and express lender’s analysis is
subject to the SBA’s review and determination of adequacy when the lender requests the SBA to
purchase its guaranty and when the SBA is conducting a review of the lender.39
As an additional safeguard against the potential for loan defaults, the SBA now requires all non-
express 7(a) loans of $350,000 or less to be SBA credit scored through E-Tran prior to
submission/approval.40
(...continued)
https://www.sba.gov/sites/default/files/sops/SOP%2050%2010%205%20G%20FINALWEB%20VERSION%20-
%20CLEAN%20Eff,%2010-1-2014.pdf.
36 SBA, “7(a) Loan Program: How the Program Works,” at http://archive.sba.gov/financialassistance/borrowers/
guaranteed/7alp/FINANCIAL_GLP_7A_WORK.html.
37 SBA, “SOP 50 10 5(G): Lender and Development Company Loan Programs,” (effective October 1, 2014), p. 195, at
https://www.sba.gov/sites/default/files/sops/SOP%2050%2010%205%20G%20FINALWEB%20VERSION%20-
%20CLEAN%20Eff,%2010-1-2014.pdf.
38 GAO, Small Business Administration: Opportunities Exist to Build on Leadership’s Efforts to Improve Agency
Performance and Employee Morale, GAO-08-995, September 24, 2008, p. 3, at http://www.gao.gov/new.items/
d08995.pdf.
39 SBA, “SOP 50 10 5(G): Lender and Development Company Loan Programs,” (effective October 1, 2014), p. 159, at
https://www.sba.gov/sites/default/files/sops/SOP%2050%2010%205%20G%20FINALWEB%20VERSION%20-
%20CLEAN%20Eff,%2010-1-2014.pdf.
40 The SBA’s credit scoring requirement was initially required of Small Loan Advantage loans, effective June 1, 2012.
See SBA, “SBA Information Notice 5000 – 1240: Revised and Expanded Small Loan Advantage – Changes
Incorporated into SOP 50 10 5(E),” June 1, 2012, at http://www.sba.gov/content/revised-and-expanded-small-loan-
advantage-%E2%80%93-changes-incorporated-sop-50-10-5e. The SBA’s credit scoring requirement was expanded to
all non-express 7(a) loans of $350,000 or less on January 1, 2014. See SBA, “SOP 50 10 5(F): Lender and
Development Company Loan Programs,” (effective January 1, 2014), p. 161, at http://www.sba.gov/sites/default/files/
Clean%20FINAL%20SOP%2050%2010%205%20(F).pdf. The SBA calculates the credit score based on a combination
(continued...)
Congressional Research Service
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Small Business Administration 7(a) Loan Guaranty Program
• If the credit score is below the minimum set by the SBA, the loan may only be
submitted as a standard 7(a) application or as an SBAExpress loan (for a 50%
guaranty) if the lender is a SBAExpress lender.
• If the credit score is acceptable to the SBA, the lender is a PLP lender, and the
loan is eligible to be processed under the PLP lender’s delegated authority, the
lender will receive an SBA loan number indicating that the loan is approved.41
The PLP lender’s documentation, including underwriting, closing, and servicing,
must be maintained in their files, and can be reviewed by the SBA at any time.
• If the lender is not a PLP lender or if the loan is not eligible to be submitted
under the PLP lender’s delegated authority, E-Tran will generate a message
instructing the lender to send application forms, along with the SBA loan
application number provided by E-Tran, to the LGPC for processing.42
The application materials required for a SBA guaranty vary depending on the size of the loan
($350,000 or less versus exceeding $350,000) and the method of processing used by the lender
(standard versus expedited/express).
Application packages “must include the forms and documentation the lender requires in order to
make an informed eligibility and credit decision” and the information provided must “be certified
by the applicant as true and complete.”43 The following SBA documentation is required for all
7(a) standard loans of $350,000 or less:
• Form 1919: Borrower Information Form. SBA form 1919 provides information
about the borrower (name, name of business, social security number, date and
place of birth, gender, race, veteran, etc.); the loan request; any indebtedness; the
principals and affiliates; current or previous government financing; the
applicant’s eligibility (e.g., criminal information, citizenship status); the loan’s
eligibility for delegated or expedited processing (e.g., the borrower is not more
than 60 days delinquent in child support payments, not proposed or presently
excluded from participation in this transaction by any federal department or
agency, has no potential for a conflict of interest due to an owner being a current
or former SBA employee, a Member of Congress, a SCORE volunteer, etc.), and,
among other disclosures, the firm’s existing number of employees, the number of
jobs to be created as a result of the loan, and the number of jobs that will be
retained as a result of the loan that would have otherwise been lost.44
• Form 912: Statement of Personal History. SBA form 912 is required if the
borrower reports on Form 1919 an arrest in the past six months for a criminal
(...continued)
of consumer credit bureau data, business bureau data, borrower financials, and application data. The minimum
acceptable credit score is based on the lower end of the risk profile of the current SBA portfolio and may be adjusted up
or down from time to time.
41 If the PLP lender indicates that the loan is eligible to be processed under the PLP lender’s delegated authority, the
lender is also certifying that SBA Form 1920 has been completed, signed, dated, and filed in the loan file.
42 Ibid., p. 203.
43 Ibid., pp. 196-197.
44 SBA, “SBA Form 1919: Lenders Application for Guaranty for all 7(a) Programs,” at http://www.sba.gov/sites/
default/files/SBA%201919%202-14.pdf.
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Small Business Administration 7(a) Loan Guaranty Program
offense or had ever been convicted, plead guilty, plead nolo contender, been
placed on pretrial diversion, or been placed on any form of parole or probation
(including probation before judgment) of any criminal offense.45 Form 912
requires the borrower to furnish details concerning his or her offense(s) and
authorizes the SBA’s Office of Inspector General to request criminal record
information about the applicant from criminal justice agencies for determining
program eligibility. It must be dated within 90 days of the application’s
submission to the SBA.
• Form 159: Fee Disclosure and Compensation Agreement. SBA form 159 is
required if the borrower reports on Form 1919 that he or she used (or intends to
use) a packager, broker, accountant, lawyer, etc. to assist in preparing the loan
application or any related materials.46 SBA form 159 is also required if the lender
retains the services of a packager, broker, accountant, lawyer, etc. to assist in
preparing the loan application or any related materials. Form 159 provides
identifying information about the packager, broker, accountant, lawyer, etc. and
the fees paid to any such person.
• Form 601: Agreement of Compliance (prohibiting discrimination). SBA form 601
is required if the borrower reports on Form 1919 that more than $10,000 of the
loan proceeds will be used for construction.47 Form 601 certifies that the
borrower will cooperate actively in obtaining compliance with Executive Order
11246, which prohibits discrimination on the basis of race, color, religion, sex, or
national origin and requires affirmative action to ensure equality of opportunity
in all aspects of employment related to federally assisted construction projects in
excess of $10,000.
• Form 1920: Lenders Application for Guaranty for all 7(a) Programs.48 SBA
form 1920 provides identifying information about the lender; the loan type
(standard, SBAExpress, Export Express, etc.); loan terms; use of proceeds; the
business’s size and information about affiliates, if any; the applicant’s character;
if credit is reasonably available elsewhere; the type of business; potential
conflicts of interest; and other information such the number of jobs created or
retained. PLP lenders complete the form and retain it in the loan file. Other
lenders must submit this form electronically to the LGPC.
• Verification of Alien Status. Documentation of the U.S. Citizenship and
Immigration Services (USCIS) status of each alien is required prior to
submission of the application to the SBA.
45 SBA, “SBA Form 912: Statement of Personal History,” at http://www.sba.gov/sites/default/files/
tools_sbf_finasst912.pdf. The lender is required to process a background check and character determination if the
borrower has been arrested in the past six months for any criminal offense or if the borrower has ever been convicted,
plead guilty, plead nolo contender, been placed on pretrial diversion, or been placed on any form of parole or probation
(including probation before judgment) of any criminal offense
46 SBA, “SBA Form 159: Fee Disclosure and Compensation Agreement,” at http://www.sba.gov/sites/default/files/
SBA%20Form%20159%20(7a)_0.pdf.
47 SBA, “SBA Form 601: Agreement of Compliance,” at http://www.sba.gov/sites/default/files/tools_sbic601.pdf.
48 SBA, “SBA Form 1920: Lenders Application for Guaranty for all 7(a) Programs,” at http://www.sba.gov/sites/
default/files/SBA%20Form%201920_0.pdf.
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Small Business Administration 7(a) Loan Guaranty Program
• Lender’s Credit Memorandum. For loans up to and including $350,000, the
Lender’s Credit Memorandum includes a brief description of the history of the
business and its management; the debt service coverage ratio (net operating
income compared to total debt service must be at least 1:1); statement that the
lender has reconciled financial data (including seller’s financial data) against IRS
transcripts; an owner/guarantor analysis (including personal financial condition);
lender’s discussion of life insurance requirements; explanation and justification
for any refinancing; analysis of credit, including lender’s rationale for
recommending approval; for a change of ownership, discussion/analysis of
business valuation and how the change benefits the business; discussion of any
liens, judgments or bankruptcy filings; and discussion of any other relevant
information. For loans exceeding $350,000, the Lender’s Credit Memorandum
must also include an analysis of collateral and a financial analysis which includes
an analysis of the historical financial statements; defining assumptions
supporting projected cash flow; and, when used, spread of pro-forma balance
sheet, ratio calculations, and working capital analysis.49
• Cash Flow Projections. A projection of the borrower’s cash flow, month-by-
month for one year, is required for all new businesses, and when otherwise
applicable.
The following forms and documentation are also required for 7(a) standard loans exceeding
$350,000:
• Form 413: Personal Financial Statement. SBA form 413 provides detailed
information concerning the applicant’s assets and liabilities and must be dated
within 90 days of submission to the SBA, on all owners of 20% or more
(including the assets of the owner’s spouse and any minor children), and
proposed guarantors. Lenders may substitute their own Personal Financial
Statement form.
• Form 1846: Statement Regarding Lobbying. SBA Form 1846 must be signed and
dated by lender.50 It indicates that if any funds have been paid or will be paid to
any person for influencing or attempting to influence an officer or employee of
any agency, Member of Congress, an officer or employee of Congress, or an
officer or employee of a Member of Congress in connection with this
commitment, the lender will complete and submit a Standard Form LLL
“Disclosure of Lobbying Activities.”51
• A copy of Internal Revenue Service (IRS) Form 4506-T, Request for Copy of Tax
Return. Lenders must identify the date IRS Form 4506-T was sent to the IRS. For
non-delegated lenders, verification of IRS Form 4506-T is required prior to
submission of the application to the SBA. For PLP and express lenders,
verification of IRS Form 4506-T is required prior the first disbursement.
49 SBA, “Standard 7(a) LGPC 10-Tab Submission Instructions,” at http://www.sba.gov/sites/default/files/files/
LGPC%2010-Tab%20Template_20140313.pdf.
50 SBA, “SBA Form 1846: Statement Regarding Lobbying,” at http://www.sba.gov/sites/default/files/
bank_sba1846.pdf.
51 U.S. Office of Management and Budget, “Standard Form LLL: Disclosure of Lobbying Activities,” at
http://www.whitehouse.gov/sites/default/files/omb/grants/sflllin.pdf.
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Small Business Administration 7(a) Loan Guaranty Program
• Business Financial Statements and/or tax returns dated within 180 days of the
application’s submission to the SBA, consisting of (1) year-end balance sheets
for the last three years, (2) year-end profit and loss statements for the last three
years, (3) reconciliation of net worth, (4) interim balance sheet, and (5) interim
profit and loss statements.
• Affiliate and Subsidiary Financial Statements and/or tax returns dated within 180
days of the application’s submission to the SBA, consisting of (1) year-end
balance sheets for the last three years, (2) year-end profit and loss statements for
the last three years, (3) reconciliation of net worth, (4) interim balance sheet, and
(5) interim profit and loss statements.
• A copy of the Lease Agreement, if applicable.
• A detailed Schedule of Collateral.52
• A detailed List of M&E (machinery and equipment) being purchased with SBA
loan proceeds, including cost quotes.
• If real estate is to be purchased with the loan proceeds, a Real Estate Appraisal,
Environmental Investigation Report questionnaire, a cost breakdown, and copy of
any Real Estate Purchase Agreements.
• If purchasing an existing business with loan proceeds, a (1) copy of buy-sell
agreement, (2) copy of business valuation, (3) pro forma balance sheet for the
business being purchased as of the date of transfer, (4) copy of the seller’s
financial statements for the last three complete fiscal years or for the number of
years in business if less than three years, (5) interim statements no older than 180
days from date of submission to the SBA, and (6) if the seller’s financial
statements are not available, the seller must provide an alternate source of
verifying revenues.
• An explanation of the type and source of applicant’s equity injection. Proper
evidence of a borrower’s equity injection may include the copy of a check
together with proof it was processed, or a copy of an escrow settlement sheet
with a bank account statement showing the injection into the business prior to
disbursement. A promissory note, “gift letter,” or financial statement is generally
not sufficient evidence.53
• If the borrower is a franchise and is listed on http://www.franchiseregistry.com, a
certification of franchise documents is required. If the franchise is not listed on
the registry, a copy of the Franchise Agreement and Federal Trade Commission
Disclosure Report of Franchisor must be submitted.54
52 For loans of up to $350,000, if a schedule of collateral is not included, the lender must provide collateral and
lienholder information to the Standard 7(a) Loan Guaranty Processing Center to complete the loan authorization.
53 SBA, “SOP 50 10 5(G): Lender and Development Company Loan Programs,” (effective October 1, 2014), p. 160, at
https://www.sba.gov/sites/default/files/sops/SOP%2050%2010%205%20G%20FINALWEB%20VERSION%20-
%20CLEAN%20Eff,%2010-1-2014.pdf.
54 Ibid., p. 192.
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Small Business Administration 7(a) Loan Guaranty Program
SBA Guaranty and Servicing Fees
To offset its costs, the SBA is authorized to charge lenders an up-front, one-time guaranty fee and
an annual, ongoing service fee for each 7(a) loan approved and disbursed.55 The SBA’s fees vary
depending on loan amount and loan maturity. The maximum guaranty fee for 7(a) loans with
maturities exceeding 12 months is set by statute and varies depending on the loan amount.56 The
fee is a percentage of the SBA guaranteed portion of the loan. On short-term loans (maturities of
less than 12 months), the lender must submit the guaranty fee to the SBA with the application for
guaranty. The application will not be processed without the fee. On loans with maturities in
excess of 12 months, the lender must pay the guaranty fee to the SBA within 90 days of the date
of loan approval. Lenders may charge the borrower for the fee after the lender has made the first
disbursement of the loan. Lenders are permitted to retain 25% of the guaranty fee on loans with a
gross amount of $150,000 or less.57
The annual service fee cannot exceed 0.55% of the outstanding balance of the SBA’s share of the
loan and is required to be no more than the “rate necessary to reduce to zero the cost to the
Administration” of making guaranties.58 The lender’s annual service fee to the SBA cannot be
charged to the borrower.59
In FY2013, the SBA charged the maximum fees allowable. As shown in Table 1, the SBA has
waived its annual service fee and up-front guaranty fee for all 7(a) loans of $150,000 or less
approved in FY2014 and FY2015. It has also reduced its annual service fee for all other 7(a)
loans from 0.55% in FY2013 to 0.52% in FY2014 to 0.519% in FY2015.
Also, as mentioned previously, the SBA has waived its up-front, one-time loan guaranty fee for
all veteran loans under the 7(a) SBAExpress program (up to $350,000) from January 1, 2014,
through the end of FY2015 and, in FY2015, for 50% of the up-front loan guaranty fee on all non-
SBAExpress 7(a) loans (of $150,001 up to and including $5 million) for veterans.60
55 P.L. 93-386, the Small Business Amendments of 1974, provided the SBA authorization to charge fees to “cover
administrative expenses and probable losses” on its loan guaranty programs.
56 P.L. 108-447, the Consolidated Appropriations Act, 2005 (Division K–Small Business, Section 102. Loan Guaranty
Fees) established the SBA’s current maximum up-front guaranty fees as: up to 2% of the SBA guaranteed portion of
7(a) loans of $150,000 or less, up to 3% of the SBA guaranteed portion of 7(a) loans exceeding $150,000 but not more
than $700,000, and up to 3.5% of the SBA guaranteed portion of 7(a) loans exceeding $700,000. In addition, 7(a) loans
with an SBA guaranteed portion in excess of $1 million can be charged an additional 0.25% guaranty fee on the
guaranteed amount in excess of $1 million. See 15 U.S.C. §636(a)(18)(a); and SBA, “Small Business Jobs Act:
Implementation of Conforming and Technical Amendments,” 76 Federal Register 63544-63545, October 13, 2011.
57 SBA, “SOP 50 10 5(G): Lender and Development Company Loan Programs,” (effective October 1, 2014), p. 138, at
https://www.sba.gov/sites/default/files/sops/SOP%2050%2010%205%20G%20FINALWEB%20VERSION%20-
%20CLEAN%20Eff,%2010-1-2014.pdf. The guaranty fee is refundable if the loan application is withdrawn prior to
SBA approval, the SBA declines to guarantee the loan, or the SBA substantially changes the loan terms and those terms
are unacceptable to the lender. Also, because the SBA does not approve or decline the credit for PLP loans, PLP
lenders are required to send the guaranty fee electronically to http://www.pay.gov within 10 business days from the
date the loan number is assigned and before the lender signs the Authorization for the SBA. For SBA Express and
Export Express loans with a maturity of 12 months or less, the lender does not send the fee to the processing center
with the request for loan number. The lender must pay the guaranty fee within 10 business days from the date the loan
number is assigned and before the lender signs the Authorization for SBA.
58 15 U.S.C. §636(a)(23)(a).
59 15 U.S.C. §636(a)(23)(b).
60 SBA, FY2015 Congressional Budget Justification and FY2013 Annual Performance Report, p. 10, at
http://www.sba.gov/sites/default/files/files/FY15_CBJ_FY%202013_APR.pdf; and SBA, “SBA Will Continue to Zero
(continued...)
Congressional Research Service
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Small Business Administration 7(a) Loan Guaranty Program
Table 1. SBA Annual Service and Guaranty Fees, FY2013-FY2015
Annual Service Fee
Guaranty Fee
Maturity and Gross
Loan Amount
FY2013 FY2014 FY2015 FY2013 FY2014 FY2015
12 months or less and
0.55% 0.00% 0.00% 0.25% 0.00% 0.00%
$150,000 or less
12 months or less and
0.55% 0.52% 0.519% 0.25% 0.25% 0.25%
more than $150,000
Exceeding 12 months and
0.55% 0.00% 0.00% 2.00% 0.00% 0.00%
$150,000 or less
Exceeding 12 months and
0.55% 0.52% 0.519% 3.00% 3.00% 3.00%a
$150,001 to $700,000
Exceeding 12 months and
0.55% 0.52% 0.519%
3.5%
up
to
3.5% up to
3.5% up to
$700,001 to $5,000,000
$1 million
$1 million
$1 million
+3.75% over
+3.75%
+3.75%
$1 million
over
over
$1 million
$1 milliona
Source: U.S. Smal Business Administration (SBA), “SBA Information Notice: 7(a) and 504 Fees Effective on
October 1, 2013,” at http://www.sba.gov/sites/default/files/5000-1288.pdf; and U.S. Smal Business Administration,
“SBA Information Notice: 7(a) and 504 Fees Effective October 1, 2014,” at http://www.sba.gov/sites/default/files/
lender_notices/5000-1318.pdf.
Notes: The annual service fee is a percentage of the outstanding balance of the SBA’s share of the loan. The
guaranty fee is a percentage of the SBA guaranteed portion of the loan. If two or more SBA guaranteed loans are
approved within 90 days of each other, the guaranty fee is determined based on the aggregate amount of the
loans. Lenders are not permitted to split loans for the purpose of avoiding fees.
a. In FY2015, the SBA is waiving 50% of the up-front loan guaranty fee on al non-SBAExpress 7(a) loans to
veterans exceeding $150,000 and the up-front, one-time loan guaranty fee for al veteran loans under the
7(a) SBAExpress program (up to $350,000).
Because the guaranty fee for loans of $150,000 or less is zero, lenders may not charge a guaranty
fee for these loans to the borrower.61
The Obama Administration argued that the fee waivers for 7(a) loans of $150,000 or less are
necessary because the demand for smaller 7(a) loans had fallen and the waiver reduction “can be
achieved with zero credit subsidy appropriations” because the “annual fees for larger 7(a) loans
will cover the cost for those smaller loans.”62 The Administration also contended that waiving the
fees on smaller SBA loans would “promote lending to small businesses that face the most
constraints on credit access.”63
(...continued)
Out Fees on Small Dollar Loans, Expands Relief for Larger Loans to Vets,” October 1, 2014, at http://www.sba.gov/
content/sba-will-continue-zero-out-fees-small-dollar-loans-expands-relief-larger-loans-vets.
61 SBA, “SBA Information Notice: 7(a) and 504 Fees Effective on October 1, 2013,” at http://www.sba.gov/sites/
default/files/5000-1288.pdf; and SBA, “SBA Information Notice: 7(a) and 504 Fees Effective October 1, 2014,” at
http://www.sba.gov/sites/default/files/lender_notices/5000-1318.pdf.
62 SBA, Fiscal Year 2014 Congressional Budget Justification and FY 2012 Annual Performance Report, p. 36.
63 U.S. Office of Management and Budget, Budget of the United States Government, Fiscal Year 2014: Small Business
Administration, p. 164, at http://www.whitehouse.gov/sites/default/files/omb/budget/fy2014/assets/business.pdf.
Congressional Research Service
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Small Business Administration 7(a) Loan Guaranty Program
For context, the SBA approved 34,282 7(a) loans of $150,000 or less, totaling $1.65 billion in
FY2010 (13.1% of the total amount approved); 29,682 7(a) loans of $150,000 or less, totaling
$1.63 billion in FY2011 (8.3% of the total amount approved); 25,486 7(a) loans of $150,000 or
less, totaling $1.43 billion in FY2012 (9.5% of the total amount approved); 24,923 7(a) loans of
$150,000 or less, totaling $1.45 billion in FY2013 (8.1% of the total amount approved); and
30,675 7(a) loans of $150,000 or less, totaling $1.86 billion in FY2014 (9.7% of the total amount
approved).64
The SBA also announced that eliminating the annual service and guaranty fees for 7(a) loans of
$150,000 or less is part of its broader effort to “reduce barriers, attract new lenders, grow loan
volumes of existing lenders and improve access to capital for small businesses and
entrepreneurs.”65
Some in Congress have questioned whether it is appropriate to require borrowers of larger 7(a)
loans to, in effect, subsidize borrowers of smaller 7(a) loans, who might be direct competitors.
They have suggested that it might be more appropriate to reduce fees across-the-board without
regard to loan size.66
Lender Packaging, Servicing, and Other Fees
The lender may charge an applicant “reasonable fees” customary for similar lenders in the
geographic area where the loan is being made for packaging and other services. The lender must
advise the applicant in writing that the applicant is not required to obtain or pay for unwanted
services. These fees are subject to SBA review at any time, and the lender must refund any such
fee considered unreasonable by the SBA.67
The lender may also charge an applicant an additional fee if, subject to prior written SBA
approval, all or part of a loan will have extraordinary servicing needs. The additional fee cannot
exceed 2% per year on the outstanding balance of the part requiring special servicing (e.g., field
inspections for construction projects). The lender may also collect from the applicant necessary
out-of-pocket expenses, including filing or recording fees, photocopying, delivery charges,
collateral appraisals, environmental impact reports that are obtained in compliance with SBA
policy, and other direct charges related to loan closing.68 The lender is prohibited from requiring
the borrower to pay any fees for goods and services, including insurance, as a condition for
obtaining an SBA guaranteed loan, and from imposing on SBA loan applicants processing fees,
64 SBA, “SBA Lending Statistics for Major Programs (as of 9/30/2012),” at http://www.sba.gov/sites/default/files/
SBA%207a%20and%20504%20Gross%20Loan%20Approval%20Volume%20as%20of%209-30-2012.pdf; SBA,
“SBA Lending Statistics for Major Programs (as of 9/30/2013),” at http://www.sba.gov/sites/default/files/
SBA%207a%20and%20504%20Gross%20Loan%20Approval%20Volume%20as%2009-30-13.pdf; and SBA, “SBA
Lending Statistics for Major Programs (as of 9/30/2014),” at http://www.sba.gov/sites/default/files/aboutsbaarticle/
WebsiteReport_asof9_30_2014.pdf.
65 SBA, FY 2014 Congressional Budget Justification and FY 2012 Annual Performance Report, p. 4.
66 For example, see Barry Pineles, Chief Counsel, House Committee on Small Business, “Hearing Memorandum on
The Budget Outlook for Small Business Administration,” April 18, 2013, pp. 11-12, at http://smallbusiness.house.gov/
uploadedfiles/revised_hearing_memo_4-24-2013.pdf.
67 13 C.F.R. §120.221.
68 Ibid.; and SBA, “SOP 50 10 5(G): Lender and Development Company Loan Programs,” (effective October 1, 2014),
p. 146, at https://www.sba.gov/sites/default/files/sops/
SOP%2050%2010%205%20G%20FINALWEB%20VERSION%20-%20CLEAN%20Eff,%2010-1-2014.pdf.
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origination fees, application fees, points, brokerage fees, bonus points, and referral or similar
fees.69
The lender is also allowed to charge the borrower a late payment fee not to exceed 5% of the
regular loan payment when the borrower is more than 10 days delinquent on its regularly
scheduled payment. The lender may not charge a fee for full or partial prepayment of a loan.70
For loans with a maturity of 15 years or longer, the borrower must pay to the SBA a subsidy
recoupment fee when the borrower voluntarily prepays 25% or more of its loan in any 1 year
during the first 3 years after first disbursement. The fee is 5% of the prepayment amount during
the first year, 3% in the second year, and 1% in the third year.71
Program Statistics
Loan Volume
The SBA generally uses the number and amount of loans approved each fiscal year, as opposed to
the number and amount of loans disbursed, for making comparisons of lending volume among its
loan guaranty programs. Although loan disbursement data can be useful, loan disbursements in
one fiscal year typically include significant amounts approved in previous fiscal years. For
example, in FY2012, 38% of 7(a) loan disbursements were from loans approved prior to
FY2012.72
The number of 7(a) loans approved annually is typically 10% to 20% higher than the number of
loans disbursed (e.g., some borrowers decide not to accept the loan or there is a change in
business ownership). The amount of 7(a) loans approved annually is typically 10% to 15% higher
than the amount disbursed.73
As shown in Table 2, the total number and amount of SBA 7(a) loans approved declined in
FY2008 and FY2009, increased during FY2010 and FY2011, declined somewhat in FY2012, and
increased in FY2013 and FY2014.
69 13 C.F.R. §120.222. A commitment fee may be charged for a loan made under the Export Working Capital Loan
Program.
70 13 C.F.R. §120.221; and SBA, “SOP 50 10 5(G): Lender and Development Company Loan Programs,” (effective
October 1, 2014), p. 146, at https://www.sba.gov/sites/default/files/sops/
SOP%2050%2010%205%20G%20FINALWEB%20VERSION%20-%20CLEAN%20Eff,%2010-1-2014.pdf.
71 13 C.F.R. §120.223; and SBA, “SOP 50 10 5(G): Lender and Development Company Loan Programs,” (effective
October 1, 2014), p. 146, at https://www.sba.gov/sites/default/files/sops/
SOP%2050%2010%205%20G%20FINALWEB%20VERSION%20-%20CLEAN%20Eff,%2010-1-2014.pdf.
72 SBA, Office of Congressional and Legislative Affairs, correspondence with the author, September 17, 2012. The
SBA maintains selected disbursement data and will provide that data to congressional offices upon request.
73 SBA, “SBA Lending Report for Major Programs, Fiscal Year 2010,” October 4, 2010, at http://archive.sba.gov/idc/
groups/public/documents/sba_homepage/serv_fa_lending_major_progs.pdf; and SBA, Office of Congressional and
Legislative Affairs, correspondence with the author, September 17, 2012.
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Table 2. 7(a) Loan Guaranty Program, Loan Volume, FY2007-FY2014
Total Unpaid
Number of Loans
Amount Approved
Principal Balance
FY
Approved
(in billions)
(in billions)
2007
99,606
$14. 3
$46.1
2008
69,434
$12.7
$47.7
2009
41,289
$9.2
$48.6
2010
47,002
$12.4
$50.8
2011
53,706
$19.6
$56.4
2012
44,377
$15.2
$60.1
2013
46,399
$17.9
$63.7
2014
52,044
$19.2
$68.2
Sources: SBA, Agency Financial Report Fiscal Year 2010, November 15, 2010, p. 7; SBA, Fiscal Year 2011
Congressional Budget Justification and FY 2009 Annual Performance Report, pp. 36, 125; SBA, “SBA Lending Statistics
for Major Programs (as of 9/30/2012),” at http://www.sba.gov/about-sba-info/317721; SBA, “SBA Lending
Statistics for Major Programs (as of 9/30/2013),” at http://www.sba.gov/sites/default/files/
SBA%207a%20and%20504%20Gross%20Loan%20Approval%20Volume%20as%2009-30-13.pdf; SBA, “SBA
Lending Statistics for Major Programs (as of 9/30/2014),” at http://www.sba.gov/sites/default/files/aboutsbaarticle/
WebsiteReport_asof9_30_2014.pdf; and SBA, “Table 1─Unpaid Principal Balance By Program,” at
http://www.sba.gov/about-sba/sba_performance/performance_budget/
smal _business_administration_(sba)_loan_program_performance.
Notes: The number of 7(a) loans approved annual y is typical y 10% to 20% higher than the number of loans
disbursed (e.g., a borrower decides not to accept the loan or a change in business ownership). The amount of
7(a) loans approved annually is typically 10% to 15% higher than the amount disbursed. SBA, Office of
Congressional and Legislative Affairs, correspondence with the author, November 21, 2013.
The SBA attributed the decreased number and amount of 7(a) loans approved in FY2008 and
FY2009 to a reduction in the demand for small business loans resulting from the economic
uncertainty of the recession (December 2007-June 2009) and to tightened loan standards imposed
by lenders concerned about the possibility of higher loan default rates resulting from the
economic slowdown. The SBA attributed the increased number of loans approved in FY2010 and
FY2011 to legislation that provided funding to temporarily reduce the 7(a) program’s loan fees
and temporarily increase the 7(a) program’s loan guaranty percentage to 90% for all standard 7(a)
loans from up to 85% of loans of $150,000 or less and up to 75% of loans exceeding $150,000.74
The fee subsidies and 90% loan guaranty percentage were in place during most of FY2010 and
the first quarter of FY2011.75 The increased number and amount of 7(a) loans approved in
74 SBA, Press Office, “Recovery Loan Incentives Spurred Continued Rebound in SBA Lending in FY2010,” October 4,
2010, at http://www.sba.gov/about-sba-services/7367/5527; and SBA, “Jobs Act Supported More Than $12 Billion in
SBA Lending to Small Businesses in Just Three Months,” January 3, 2011, at http://www.sba.gov/content/jobs-act-
supported-more-12-billion-sba-lending-small-businesses-just-three-months.
75 P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA), enacted on February 17, 2009, provided
the SBA $375 million to temporarily reduce fees in the 7(a) and 504/CDC loan guaranty programs, and increase the
7(a) program’s maximum loan guaranty percentage to 90% for all standard 7(a) loans through September 30, 2010, or
until available funds were exhausted. Due to the increased demand for 7(a) loans, available funding was anticipated to
be exhausted in early January 2010. P.L. 111-118, the Department of Defense Appropriations Act, 2010, provided the
SBA $125 million to continue the fee subsidies and 90% maximum loan guaranty percentage through February 28,
2010. P.L. 111-144, the Temporary Extension Act of 2010, provided the SBA $60 million to continue the fee subsidies
and 90% maximum loan guaranty percentage through March 28, 2010. P.L. 111-150, an act to extend the Small
Business Loan Guarantee Program, and for other purposes, provided the SBA authority to reprogram $40 million in
(continued...)
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FY2013 and FY2014 compared with FY2012 are generally attributed to improving economic
conditions.76
Table 2 also provides, for comparison purposes, the total amount of the 7(a) program’s unpaid
principal balance by fiscal year. Precise measurements of the total credit market for small
businesses are not available. However, the SBA has estimated that the credit market for small
businesses (outstanding bank loans of $1 million or less, plus credit extended by finance
companies and other sources) is roughly $1.0 trillion.77 As of September 30, 2014, the SBA’s 7(a)
program’s unpaid principal balance was $68.2 billion, or about 6.7% of that amount.78
Appropriations for Loan Subsidy Costs
One of the SBA’s goals is to achieve a zero subsidy rate for its loan guaranty programs. A zero
subsidy rate occurs when the SBA’s loan guaranty programs generate sufficient revenue through
fee collections and recoveries of collateral on purchased (defaulted) loans to not require
appropriations to issue new loan guarantees. From 2005 to 2009, the SBA did not request
appropriations to subsidize the cost of any of its loan guaranty programs, including the 7(a)
program. However, as indicated in Table 3, loan guaranty fees and loan liquidation recoveries did
not generate enough revenue to cover loan losses in the 7(a) loan guaranty program from FY2010
through FY2013 and in the 504/CDC loan guaranty program from FY2012 through FY2015.
Appropriations were provided to address the shortfalls.
(...continued)
previously appropriated funds to continue the fee subsidies and 90% maximum loan guaranty percentage through April
30, 2010. P.L. 111-157, the Continuing Extension Act of 2010, provided the SBA $80 million to continue the SBA’s
fee subsidies and 90% maximum loan guaranty percentage through May 31, 2010. The fee subsidies and 90% loan
guaranty percentage expired on May 31, 2010. P.L. 111-240, the Small Business Jobs Act of 2010, enacted on
September 27, 2010, provided the SBA $505 million (plus an additional $5 million for related administrative expenses)
to reinstate the fee subsidies and 90% maximum loan guaranty percentage through December 31, 2010, or until
available funds were exhausted. P.L. 111-322, the Continuing Appropriations and Surface Transportation Extensions
Act, 2011, authorized the SBA to use any funds remaining from the Small Business Jobs Act of 2010 to continue the
fee subsidies and the 7(a) program’s 90% maximum loan guaranty percentage through March 4, 2011, or until the
available funding was exhausted. The funds were exhausted on January 3, 2011.
76 A small portion of the increase may also have been a result of an increase in 7(a) loan applications during the final
two weeks of FY2013 as borrowers and lenders anticipated a possible federal government shutdown starting on
October 1, 2013 (the first day of FY2014). See J.D. Harrison, “Shutdown yields slowdown: SBA returns to hundreds of
small-business loans,” The Washington Post, October 18, 2013. Prior to September 13, 2013, the SBA approved, on
average, about 857 loans totaling $320,787 per week during FY2013 (42,851 loan approvals totaling $16,039,363 as of
September 13, 2013, the 50th week of the fiscal year). The SBA approved 3,548 loans totaling $1,828,918 during the
final two weeks (and a day) of FY2013. See SBA, “SBA Lending Statistics for Major Programs (as of 9/13/2013,
9/20/2013, 9/27/2013, 9/30/2013, and 9/30/2014),” at http://www.sba.gov/about-sba/sba_newsroom/
weekly_lending_report. The federal government shutdown subsequently occurred on October 1, 2013, and continued
through October 16, 2013.
77 SBA, Office of Advocacy, “Frequently Asked Questions About Small Business Finance,” February 2014, at
http://www.sba.gov/sites/default/files/2014_Finance_FAQ.pdf.
78 SBA, “Table 1 ─ Unpaid Principal Balance By Program,” at http://www.sba.gov/about-sba/sba_performance/
performance_budget/small_business_administration_(sba)_loan_program_performance.
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The Obama Administration indicated in its FY2016 budget request that the 7(a) and 504/CDC
loan guaranty programs will not need appropriations for business loan credit subsidies in
FY2016.79
Table 3. Business Loan Credit Subsidies, 7(a) and 504/CDC Loan Guaranty
Programs, FY2007-FY2016
($ in millions)
FY 7(a)
504/CDC
Total
Subsidy
2007 $0.0
$0.0 $0.0
2008 $0.0
$0.0 $0.0
2009 $0.0
$0.0 $0.0
2010 $80.0
$0.0 $80.0
2011 $80.0
$0.0 $80.0
2012 $139.4
$67.7 $207.1
2013 $213.8
$102.5 $316.3
2014 $0.0 $107.0
$107.0
2015 $0.0 $45.0 $45.0
2016 request
$0.0
$0.0
$0.0
Source: SBA, FY 2011 Congressional Budget Justification and FY 2009 Annual Performance Report, p. 19; SBA,
FY 2012 Congressional Budget Justification and FY 2010 Annual Performance Report, p. 22; SBA, FY 2013
Congressional Budget Justification and FY 2011 Annual Performance Report, p. 19; SBA, FY 2014 Congressional
Budget Justification and FY 2012 Annual Performance Report, p. 25; SBA, FY 2015 Congressional Budget
Justification and FY 2013 Annual Performance Report, p. 24; P.L. 113-235, the Consolidation and Further
Continuing Appropriations Act, 2015; and SBA, FY 2016 Congressional Budget Justification and FY 2014 Annual
Performance Report, p. 16.
Notes: The Microloan program also receives a credit subsidy, primarily for providing below market interest
rates to Microloan intermediaries. The subsidies were $1.3 million in FY2007, $2.0 million in FY2008, $2.5
mil ion in FY2009, $3.0 million in FY2010 and FY2011, $3.678 million in FY2012, $3.498 million (after
sequestration) in FY2013, $4.6 mil ion in FY2014, and $2.5 million in FY2015. The Obama Administration has
requested $3.338 million for Microloan credit subsidies for FY2016.
Administrative Expenses
In FY2014, the SBA spent $66.5 million on the 7(a) program for administrative expenses,
including $40.6 million for loan making, $5.8 million for loan servicing, and $20.1 million for
loan liquidation. Also, the SBA spent $27.0 million on lender oversight, including oversight of
7(a) lenders. The SBA anticipates that 7(a) program administrative expenses will be about $65.9
million in FY2015, and that it will spend about $27.1 million on lender oversight for the SBA’s
various lending programs.80
79 SBA, FY 2016 Congressional Budget Justification and FY 2014 Annual Performance Report, p. 16.
80 SBA, FY 2016 Congressional Budget Justification and FY 2014 Annual Performance Report, p. 26.
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Use of Proceeds and Borrower Satisfaction
In 2008, the Urban Institute released the results of an SBA-commissioned study of the SBA’s loan
guaranty programs. As part of its analysis, the Urban Institute surveyed a random sample of SBA
loan guaranty borrowers. The survey indicated that borrowers used 7(a) loan proceeds to
• purchase or install new equipment (34%);
• finance working capital (23%);
• acquire original business (21%);
• other (19%);
• expand or renovate current building (14%);
• purchase new building (10%);
• refinance existing debt (8%);
• hire additional staff (6%);
• build new building (4%);
• purchase new land (3%); and
• improve land (2%).81
The Urban Institute also reported that most of the 7(a) borrowers responding to the survey rated
their overall satisfaction with their 7(a) loan and loan terms as either excellent (18%) or good
(50%). One out of every five 7(a) borrowers (20%) rated their overall satisfaction with their 7(a)
loan and loan terms as fair, and 6% rated their overall satisfaction with their 7(a) loan and loan
terms as poor (7% reported don’t know or did not respond).82 In addition, 90% of the survey’s
respondents reported that the 7(a) loan was either very important (62%) or somewhat important
(28%) to their business success (2% reported somewhat unimportant, 3% reported very
unimportant, and 4% reported don’t know or did not respond).83
Borrower Demographics
The Urban Institute found that about 9.9% of conventional small business loans are issued to
minority-owned small businesses, and about 16% of conventional small business loans are issued
to women-owned businesses.84 In FY2014, 28.9% of 7(a) loan approvals ($5.54 billion of $19.19
billion) were to minority-owned businesses (21.3% Asian, 5.3% Hispanic, 1.8% African-
American, 0.5% American Indian, and 0.01% multi-group) and 13.3% were to women-owned
81 Christopher Hayes, An Assessment of Small Business Administration Loan and Investment Performance: Survey of
Assisted Businesses (Washington, DC: The Urban Institute, 2008), p. 3, at http://www.urban.org/UploadedPDF/
411599_assisted_business_survey.pdf. The percentage total exceeds 100 because recipients were allowed to name more
than one use for the loan proceeds.
82 Ibid., p. 5.
83 Ibid.
84 Kenneth Temkin, Brett Theodos, with Kerstin Gentsch, Competitive and Special Competitive Opportunity Gap
Analysis of the 7(A) and 504 Programs (Washington, DC: The Urban Institute, 2008), p. 13, at http://www.urban.org/
UploadedPDF/411596_504_gap_analysis.pdf.
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businesses.85 From its comparative analysis of conventional small business loans and the SBA’s
loan guaranty programs, the Urban Institute concluded:
SBA’s loan programs are designed to enable private lenders to make loans to creditworthy
borrowers who would otherwise not be able to qualify for a loan. As a result, there should be
differences in the types of borrowers and loan terms associated with SBA-guaranteed and
conventional small business loans.
Our comparative analysis shows such differences. Overall, loans under the 7(a) and 504
programs were more likely to be made to minority-owned, women-owned, and start-up
businesses (firms that have historically faced capital gaps) as compared to conventional
small business loans. Moreover, the average amounts for loans made under the 7(a) and 504
programs to these types of firms were substantially greater than conventional small business
loans to such firms. These findings suggest that the 7(a) and 504 programs are being used by
lenders in a manner that is consistent with SBA’s objective of making credit available to
firms that face a capital opportunity gap.86
Congressional Issues
Access to Capital
Congressional interest in the 7(a) loan program has increased in recent years largely because of
concerns that small businesses might be prevented from accessing sufficient capital to enable
them to assist in the economic recovery. During the 110th and 111th Congresses, several laws were
enacted to increase the supply and demand for capital for both large and small businesses.87 For
example, in 2008, Congress adopted P.L. 110-343, the Emergency Economic Stabilization Act of
2008, which authorized the Troubled Asset Relief Program (TARP). Under TARP, the U.S.
Department of the Treasury was authorized to purchase or insure up to $700 billion in troubled
assets, including small business loans, from banks and other financial institutions. The law’s
intent was “to restore liquidity and stability to the financial system of the United States.”88 P.L.
111-203, the Dodd-Frank Wall Street Reform and Consumer Protection Act, reduced total TARP
purchase authority from $700 billion to $475 billion. The Treasury Department’s authority to
make new financial commitments under TARP ended on October 3, 2010. The Department of the
Treasury has disbursed approximately $389 billion in TARP funds, including $337 million to
purchase SBA 7(a) loan guaranty program securities.89
85 SBA, “SBA Lending Statistics for Major Programs (as of 9/30/2014),” at http://www.sba.gov/sites/default/files/
aboutsbaarticle/WebsiteReport_asof9_30_2014.pdf.
86 Kenneth Temkin, Brett Theodos, with Kerstin Gentsch, Competitive and Special Competitive Opportunity Gap
Analysis of the 7(A) and 504 Programs (Washington, DC: The Urban Institute, 2008), p. 21, at http://www.urban.org/
UploadedPDF/411596_504_gap_analysis.pdf.
87 For further analysis, see CRS Report R40985, Small Business: Access to Capital and Job Creation, by Robert Jay
Dilger.
88 P.L. 110-343, the Emergency Economic Stabilization Act of 2008.
89 U.S. Department of the Treasury, Troubled Assets Relief Program Monthly 105(a) Report–November 2010,
December 10, 2010, pp. 2-4, at http://www.financialstability.gov/docs/November%20105(a)%20FINAL.pdf. On March
16, 2009, President Obama announced that the Department of the Treasury would use TARP funds to purchase up to
$15 billion of SBA-guaranteed loans to “immediately unfreeze the secondary market for SBA loans and increase the
liquidity of community banks.” The plan was deferred after it met resistance from lenders. Some lenders objected to
(continued...)
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In addition, as mentioned previously, in 2009, ARRA provided an additional $730 million for
SBA programs, including $375 million to temporarily reduce fees in the SBA’s 7(a) and 504/CDC
loan guaranty programs and increase the 7(a) program’s maximum loan guaranty percentage from
up to 85% of loans of $150,000 or less and up to 75% of loans exceeding $150,000 to 90% for all
standard 7(a) loans. Congress subsequently provided another $265 million, and authorized the
SBA to reprogram another $40 million, to extend the fee reductions and loan modification
through May 31, 2010, and the Small Business Jobs Act of 2010 provided another $505 million
(plus $5 million for administrative expenses) to extend the fee reductions and loan modification
from September 27, 2010, through December 31, 2010. Also, P.L. 111-322, the Continuing
Appropriations and Surface Transportation Extensions Act, 2011, authorized the use of any
funding remaining from the Small Business Jobs Act of 2010 to extend the fee subsidies and 90%
maximum loan guaranty percentage through March 4, 2011, or until the available funding was
exhausted.90 Funding for these purposes was exhausted on January 3, 2011.
The Obama Administration argued that TARP and the additional funding for the SBA’s loan
guaranty programs helped to improve the small business lending environment and supported “the
retention and creation of hundreds of thousands of jobs.”91 Critics argued that small business tax
reduction, reform of financial credit market regulation, and federal fiscal restraint are the best
means to assist small business economic growth and job creation.92
Program Administration
Over the years, the SBA’s Office of Inspector General (OIG) and the U.S. Government
Accountability Office (GAO) have independently reviewed the SBA’s administration of the
SBA’s loan guaranty programs. Although improvements have been noted, both agencies have
reported deficiencies in the SBA’s administration of its loan guaranty programs that they argue
need to be addressed, including issues involving the oversight of 7(a) lenders and the lack of
outcome-based performance measures.
(...continued)
TARP’s requirement that participating lenders comply with executive compensation limits and issue warrants to the
federal government. Smaller community banks objected to the program’s paperwork requirements, such as the
provision of a small-business lending plan and quarterly reports. See The White House, “Remarks by the President to
Small Business Owners, Community Leaders, and Members of Congress,” March 16, 2009, at
http://www.whitehouse.gov/the_press_office/Remarks-by-the-President-to-small-business-owners/.
90 P.L. 111-240, the Small Business Jobs Act of 2010, §1111. Section 7(A) Business Loans. The Senate had adopted
H.R. 4213, the American Workers, State, and Business Relief Act of 2010, on March 10, 2010, by a 62-36 vote. It
would have provided $560 million to extend the fee reductions and 90% loan guarantee limit through December 31,
2010. The House approved an amended version of the bill, renamed the American Jobs and Closing Tax Loopholes Act
of 2010, on May 28, 2010, by a 245-171 vote. It would have provided $505 million to extend the fee reductions and
90% loan guarantee limit through December 31, 2010. The extension provision was subsequently removed from the
bill, which became P.L. 111-205, the Unemployment Compensation Extension Act of 2010.
91 SBA, “Administration Announces New Small Business Commercial Real Estate and Working Capital Programs,”
February 5, 2010, at http://www.sba.gov/sites/default/files/sba_rcvry_factsheet_cre_refi.pdf.
92 Susan Eckerly, “NFIB Responds to President’s Small Business Lending Initiatives,” Washington, DC, October 21,
2009, at http://www.nfib.com/newsroom/newsroom-item/cmsid/50080/; and NFIB, “Government Spending,”
Washington, DC, at http://www.nfib.com/issues-elections/issues-elections-item/cmsid/49051/.
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Oversight of 7(a) Lenders
On December 1, 2000, the OIG released its FY2001 list of the most serious management
challenges facing the SBA and included, for the first time, the oversight of SBA lenders.93 Since
then, the OIG has determined that the SBA has made significant progress in improving its
oversight of SBA lenders. For example, the OIG commended the SBA for (1) developing risk
profiles and lender performance thresholds, (2) creating a Select Analytical Review process to
allow for virtual risk-based reviews, (3) updating its lender risk rating model to better stratify and
predict risk, and (4) conducting test reviews under the new risk-based review protocol. However,
the OIG continues to list lender oversight as one of the most serious management challenges
facing the SBA because it argues that several issues have not been fully addressed. Specifically,
the OIG reports that the SBA needs to “implement and demonstrate the effectiveness of the
process for monitoring and verifying lenders’ implementation of corrective actions.”94
The Need for an Agency-Wide Quality Control Program
In 2000, the OIG noted that “private lenders are performing an increasing percentage of loan
underwriting, servicing, and liquidation functions that were previously performed by SBA staff”
and that a summary audit of the 7(a) loan program in 1999 which it had conducted found that
“lenders did not consistently comply with 22 key processing procedures.”95 The OIG also noted
that GAO had found in 1998 “that in the five district offices visited, SBA had not performed an
on-site visit review of about 96% of the lenders in the past 5 years.”96
In response to these concerns, the SBA established an Office of Lender Oversight (renamed the
Office of Credit Risk Management in 2007), led by an Associate Administrator. In October 2000,
that office drafted a strategic plan to serve as a basis for developing a Standard Operating
Procedure (SOP) for lender oversight and, among other activities, initiated “steps to develop and
implement a comprehensive loan monitoring system to evaluate lender performance. The system
will collect data on lenders such as delinquency default rates, liquidations, loan payments, and
loan originations.”97
Over the next several years, the SBA took a number of actions to improve its oversight of 7(a)
lenders. For example, in 2004, the SBA’s National Guaranty Purchase Center developed a quality
control plan “to review the quality of the guaranty purchase process.”98 In 2006, the SBA issued
an SOP that established procedures for on-site, risk-based lender reviews and safety and
soundness examinations for 7(a) lenders and Certified Development Companies (CDCs)
93 SBA, Office of Inspector General, “FY2001 Agency Management Challenges,” December 1, 2000, pp. 15-17, at
http://archive.sba.gov/idc/groups/public/documents/sba/oig_reports_tmc_fy01.pdf.
94 SBA, Office of Inspector General, “Report on the Most Serious Management and Performance Challenges Facing the
Small Business Administration In Fiscal Year 2014,” October 31, 2013, at http://www.sba.gov/sites/default/files/
[c]FY%202014%20Management%20Challenges%20OIG%20Report%2014-01.pdf.
95 SBA, Office of Inspector General, “FY2001 Agency Management Challenges,” December 1, 2000, p. 15, at
http://archive.sba.gov/idc/groups/public/documents/sba/oig_reports_tmc_fy01.pdf.
96 Ibid.
97 Ibid., p. 17.
98 SBA, Office of Inspector General, “Improvement is Needed to Ensure Effective Quality Control at Loan Operation
Centers,” January 17, 2014, p. 1, at http://www.sba.gov/sites/default/files/Audit%20Evaluation%20Report%2014-
08%20Improvement%20is%20Needed%20to%20Ensure%20Effective%20Quality%20Control%20at%20Loan%20Ope
ration%20Centers.pdf.
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participating the SBA’s 504/CDC loan guaranty program.99 In 2007, the SBA completed the
centralization of all 7(a) loan processing activities and, with very limited exception, ended loan
making, servicing, liquidation, and guaranty purchase activity at district offices.100 In 2008, the
SBA issued an SOP for 7(a) lender oversight which included uniform policies and procedures for
the evaluation of lender performance.101 In October 2008, the SBA’s Office of Financial Program
Operations (OFPO) began designing “a comprehensive quality control program across all of its
centers.”102 Previously, quality control was conducted within each loan center (Standard 7(a)
Loan Guaranty Processing Center, Commercial Loan Service Center, and National Guaranty
Purchase Center) “at various levels of sophistication.”103 The SBA also issued an interim final
rule in the Federal Register on December 1, 2008, incorporating the SBA’s risk-based lender
oversight program into the SBA’s regulations.104
Nonetheless, in 2009, the OIG argued that the 7(a) loan guaranty program continued to be
“vulnerable to fraud and unnecessary losses because [the SBA] relies on numerous third parties
(e.g., borrowers, loan agents, and lenders)” to complete loan transactions for about 80% of the
loans guaranteed annually by the SBA.105
The OIG noted at that time that its review of the 7(a) program’s FY2008 lending found that the
SBA’s estimate of improper payments for FY2008 significantly understated the level of erroneous
payments in the program. The SBA reported that improper payments were 0.53% of FY2008
program outlays, whereas the OIG estimated the improper payment rate to be 29%
(approximately $248 million) of the $869 million in loan guaranties purchased between April 1,
2007, and March 31, 2008.106 In addition, the OIG’s review of a sample of 30 7(a) loans issued in
FY2008 found that 14 of the loans lacked evidence to support lender compliance with SBA
origination, servicing, or liquidation requirements, resulting in improper payments totaling
$723,293. In contrast, the SBA reported improper payments of $4,468 on two of the sampled
99 SBA, Office of Lender Oversight, “SOP 51-00: On-Site Lender Reviews/Examinations,” (effective September 28,
2006), at http://www.sba.gov/sites/default/files/sop_51-00-pdf.pdf. Note: Although on-site reviews are generally
conducted on all 7(a) lenders with outstanding balances on the SBA-guaranteed portions of its loan portfolio amounting
to $10 million or more, the SBA may conduct on-site reviews of any SBA lender, as it considers necessary.
100 SBA, FY 2009 Congressional Budget Justification and FY 2007 Annual Performance Report, p. 37.
101 SBA, Office of Financial Assistance, “SOP 50-10(5): Lender and Development Company Loan Programs,”
(effective August 1, 2008), at http://www.sba.gov/sites/default/files/serv_sops_50105_0.pdf.
102 SBA, Office of Inspector General, “Improvement is Needed to Ensure Effective Quality Control at Loan Operation
Centers,” January 17, 2014, p. 15, at http://www.sba.gov/sites/default/files/Audit%20Evaluation%20Report%2014-
08%20Improvement%20is%20Needed%20to%20Ensure%20Effective%20Quality%20Control%20at%20Loan%20Ope
ration%20Centers.pdf.
103 Ibid. The Standard 7(a) Loan Guaranty Processing Center, located in Citrus Heights, CA and Hazard, KY, processes
7(a) loan guaranty applications and conducts limiting servicing of 7(a) loans. The Commercial Loan Service Center,
located in Fresno, CA and Little Rock, AR, is responsible for loan servicing actions (after loans are disbursed),
SBAExpress loan purchases, and 504/CDC loan guaranty program liquidation. The National Guaranty Purchase Center,
located in Herndon, VA, processes 7(a) guaranty purchase requests and conducts liquidation oversight.
104 SBA, “Lender Oversight Program,” 73 Federal Register 75498-75527, December 11, 2008.
105 SBA, Office of Inspector General, “Semiannual Report to Congress, Fall 2009,” p. 5, at http://www.sba.gov/office-
of-inspector-general/867/12348.
106 Ibid., p. 5.
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loans.107 The OIG concluded that the SBA needed to strengthen its oversight of 7(a) lenders to
“establish more robust controls to prevent waste, fraud, abuse, and inefficiencies.”108
In 2009, GAO also recommended that the SBA strengthen its oversight of 7(a) lenders. GAO
argued that although the SBA’s “lender risk rating system has enabled the agency to conduct
some off-site monitoring of lenders, the agency does not use the system to target lenders for on-
site reviews or to inform the scope of the reviews.”109 It also noted that
the SBA targets for review those lenders with the largest SBA-guaranteed loan portfolios. As
a result of this approach, 97% of the lenders that SBA’s risk rating system identified as high
risk in 2008 were not reviewed. Further, GAO found that the scope of the on-site reviews
that SBA performs is not informed by the lenders’ risk ratings, and the reviews do not
include an assessment of lenders’ credit decisions.110
GAO argued that although the SBA “has made improvements to its off-site monitoring of lenders,
the agency will not be able to substantially improve its lender oversight efforts unless it improves
its on-site review process.”111
Agency-Wide Quality Control Program Implementation
In 2010, the SBA’s OFPO established its agency-wide quality control program, which is designed
to improve service and “reduce waste, fraud, and abuse” by ensuring “that centers accurately and
consistently apply statutory, regulatory, and procedural loan program requirements.”112 The
quality control program is led in each center by a designated quality control specialist. Each
center is tasked with establishing specific quality review activities and targets, and creating a
center specific quality program guide to detail (1) the center’s activities that require quality
reviews, (2) the number of reviews required (daily or monthly) by type of transaction, (3)
compliance goals, and (4) the required corrective action activities.113
Also in 2010, the SBA noted that it had developed a “risk-based, off-site analysis of lending
partners through the Loan/Lender Monitoring System (L/LMS), a state-of-the-art portfolio
monitoring system that incorporates credit scoring metrics for portfolio management
purposes.”114 According to the SBA:
107 Ibid.
108 Ibid., p. 3.
109 GAO, Small Business Administration: Actions Needed to Improve the Usefulness of the Agency’s Lender Risk
Rating System, GAO-1-53, November 6, 2009, p. i, at http://www.gao.gov/new.items/d1053.pdf.
110 Ibid., pp. i, 27-30.
111 Ibid., p. 35. In a separate report concerning the SBA’s administration of the 7(a) program, GAO also argued in 2009
that the SBA needs to “improve its oversight of lenders’ compliance with the credit elsewhere requirement.” See GAO,
Small Business Administration: Additional Guidance on Documenting Credit Elsewhere Decisions Could Improve 7(a)
Program Oversight, GAO-09-228, February 12, 2009, p. 3, at http://www.gao.gov/new.items/d09228.pdf.
112 SBA, Office of Inspector General, “Improvement is Needed to Ensure Effective Quality Control at Loan Operation
Centers,” January 17, 2014, p. 3, at http://www.sba.gov/sites/default/files/Audit%20Evaluation%20Report%2014-
08%20Improvement%20is%20Needed%20to%20Ensure%20Effective%20Quality%20Control%20at%20Loan%20Ope
ration%20Centers.pdf.
113 Ibid., pp. 6, 16.
114 SBA, Fiscal Year 2011 Congressional Budget Justification and FY 2009 Annual Performance Report, p. 6.
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The Loan/Lender Monitoring System focuses on 7(a) lenders, certified development
companies and microloan intermediaries that pose the most risk to the SBA. In addition to
overseeing lenders, the L/LMS provides policy, portfolio and program analysis. The Office
of Credit Risk Management (OCRM) is divided into four teams: large lender oversight, small
lender oversight, lender transaction, and program and policy analysis. The differentiation of
lender oversight by lender size reflects the different forms of oversight needed for large
lenders versus small lenders.115
The SBA asserted that
The OCRM is continually enhancing and updating oversight programs and practices to
provide a more robust and responsive system. Enhancements include: (1) better integration
of delegated lending decisions into oversight practices; (2) addition of different types of
lender reviews (targeted, desk, agreed upon procedures, etc.) to provide more options to
obtain information in the most timely and efficient manner possible; (3) assessment of
current on-site review practices to customize them based on risk factors and consider credit
decisions made by lenders; (4) development of a lender certification program (particularly
for community lenders); (5) quarterly reporting for non-bank lenders; (6) identification/
monitoring of risk related red flags and triggers; and (7) training for OCA staff, district office
staff and lenders in the new process.116
In January 2014, the OIG released an evaluation of the SBA’s agency-wide quality control
program. The OIG’s evaluation was conducted from March 2013 through September 2013. The
OIG concluded that the SBA had “made significant progress” in implementing a quality control
program for its loan centers, but also found that “quality control activities were not being
performed at the centers in accordance with SBA’s overall Quality Control and Assurance
Program Guide and Center specific guidance.”117 The OIG noted that the loan centers omitted
required quality control reviews of significant functions, discontinued regularly scheduled quality
reviews for about five months during FY2012 to focus on reviews required by the Improper
Payments Elimination and Recovery Act of 2010, and did not appropriately track corrective
actions until resolution on deficiencies identified by center quality control teams.118
The OIG recommended that the SBA (1) ensure the proper allocation of resources and scoping of
the quality control program to complete required quality control activities at the loan operations
centers; (2) ensure that corrective actions related to quality control findings are appropriately
documented and completed within required timeframes; and (3) establish and implement a plan to
conduct quality assurance activities at SBA loan operation centers.119
The SBA agreed with the OIG’s recommendations and indicated that it was taking action to
address them. For example, the SBA indicated that the OFPO had already “hired quality control
specialists and initiated a process improvement project dedicated to ensure adequate staffing is
115 Ibid., p. 43.
116 Ibid.
117 SBA, Office of Inspector General, “Improvement is Needed to Ensure Effective Quality Control at Loan Operation
Centers,” January 17, 2014, p. 4, at http://www.sba.gov/sites/default/files/Audit%20Evaluation%20Report%2014-
08%20Improvement%20is%20Needed%20to%20Ensure%20Effective%20Quality%20Control%20at%20Loan%20Ope
ration%20Centers.pdf.
118 Ibid., pp. 4, 5.
119 Ibid., pp. 17-19.
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available;”120 and had “initiated a project to redevelop the corrective action process, which
resulted in the development and implementation of the Corrective Action Tracker [started in
October 2013 and fully operational in January 2014],” which “maintains and provides consistent
data for tracking and analyzing loan-level deficiencies status and trends across centers.”121 The
SBA also indicated that it was reviewing the existing quality program guides for each center and
will establish an initial quality assurance plan by March 30, 2014.122
In June 2014, the OIG released an evaluation of the SBA’s management of the 7(a) loan guaranty
approval process. From June 2013 through March 2014, the OIG reviewed 70 loans approved by
the SBA’s Loan Guaranty Processing Center (LGPC) during the period of April 1, 2011, to April
30, 2013 “to assess compliance with SBA’s regulations and procedures.”123 These loans totaled
$58 million. The OIG found that
based on a small judgmental sample of 13 loans approved for $13 million, we identified that
11 loans approved for $11.3 million had material underwriting deficiencies. Additionally, 6
of the 11 loans defaulted and the SBA purchased the guaranties for $4.8 million, resulting in
unnecessary losses. Further we conducted limited reviews of another 57 SBA-approved 7(a)
loans that were transferred to liquidation and defaulted early. We found evidence that eight
of these loans totaling $5.6 million should not have been approved due to repayment ability
and eligibility deficiencies.124
The OIG concluded that
• LGPC management emphasized quantity over quality for 7(a) loan reviews;
• LGPC loan specialists were not provided adequate guidance and training to
conduct their 7(a) loan review activities; and
• a decrease in the number of staff assigned to loan reviews, increase in loan size
and complexity, additional LGPC responsibilities, and inadequate supervision
also contributed to inappropriate loan decisions.125
The OIG recommended that the SBA (1) revise its management reports to measure quality against
established targets and ensure that production credit is given for all loan reviews; (2) distribute
the LGPC Strategic Plan to staff and establish a process to ensure that quality goals are regularly
communicated to LGPC staff; (3) develop and issue appropriate guidance that will assist loan
specialists with their duties; (4) develop and implement a training plan and tracking system that
ensures loan specialists develop and retain the required skills necessary to achieve organizational
goals; and (5) allocate LGPC resources to ensure risk is mitigated and quality is emphasized in
accordance with the LGPC Strategic Plan.126
120 Ibid., p. 11.
121 Ibid., p. 17.
122 As of the publication date of this report, the SBA has not made any announcements concerning the establishment of
this quality assurance plan.
123 SBA, “Significant Opportunities Exist to Improve the Management of the 7(a) loan Guaranty Approval Process,”
June 6, 2014, p. 2, at http://www.sba.gov/sites/default/files/[c]%20Audit%20Report%2014-13.pdf.
124 Ibid., p. 8.
125 Ibid.
126 Ibid., p. 21.
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The SBA concurred with these recommendations and indicated that it was in the process of taking
action to address them. For example, the OFPO indicated that it was revising its management
reports to measure quality against established targets, continuing to distribute the LGPC Strategic
Plan with an increased emphasis on the communication of quality goals, and inventorying
existing guidance in an attempt to create a comprehensive manual for all LGPC staff that will be
linked to all staff member’s desktop computers.127
Outcome-Oriented Performance Measures
GAO has argued that the 7(a) program’s performance measures (e.g., number of loans approved,
loans funded, and firms assisted across the subgroups of small businesses) provide limited
information about the impact of the loans on participating small businesses:
The program’s performance measures focus on indicators that are primarily output
measures–for instance, they report on the number of loans approved and funded. But none of
the measures looks at how well firms do after receiving 7(a) loans, so no information is
available on outcomes. As a result, the current measures do not indicate how well the agency
is meeting its strategic goal of helping small businesses succeed.128
The SBA’s OIG has made a similar argument concerning the SBA’s Microloan program’s
performance measures. Because the SBA uses similar program performance measures for its
Microloan and 7(a) programs, the OIG’s recommendations could also be applied to the SBA’s
7(a) program.
Specifically, as part of its audit of the SBA Microloan program’s use of ARRA funds, the OIG
found that the SBA’s performance measures for the Microloan program are based on the number
of microloans funded, the number of small businesses assisted, and program’s loan loss rate. It
argued that these “performance metrics ... do not ensure the ultimate program beneficiaries, the
microloan borrowers, are truly assisted by the program” and “without appropriate metrics, SBA
cannot ensure the Microloan program is meeting policy goals.”129 It noted that the SBA does not
track the number of microloan borrowers who remain in business after receiving a microloan to
measure the extent to which the loans contributed to the success of borrowers and does not
determine the effect that technical training assistance may have on the success of microloan
borrowers and their ability to repay loans.130 It recommended that the SBA “develop additional
performance metrics to measure the program’s achievement in assisting microloan borrowers in
establishing and maintaining successful small businesses.”131
In its response to GAO’s recommendation to develop additional performance measures for the
7(a) program, the SBA indicated that there are legal constraints and cost considerations associated
with tracking the success or failure of SBA borrowers and that it had, at that time, “a new
127 Ibid., pp. 24-25.
128 GAO, Small Business Administration: 7(a) Loan Program Needs Additional Performance Measures, GAO-08-
226T, November 1, 2007, p. 2, at http://www.gao.gov/new.items/d08226t.pdf.
129 SBA, Office of the Inspector General, SBA’s Administration of the Microloan Program under the Recovery Act,
December 28, 2009, p. 6, at http://www.sba.gov/sites/default/files/om10-10.pdf.
130 Ibid.
131 Ibid., p. 7.
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administrator who may make changes to the agency’s performance measures and goals.”132 In
response to the OIG’s recommendation to develop additional performance metrics for the
Microloan program, the SBA reported that it had “contracted with the Aspen Institute to advise on
appropriate program and performance metrics for both microloans and technical assistance
grants.”133 It also indicated that the program metrics developed will be used to assist the agency in
measuring the Microloan program’s effectiveness. Given that the Microloan program and 7(a)
program use similar performance measures, it could be argued that the program metrics
developed for the Microloan program may be applied to the 7(a) program as well.
Legislative Activity During the 111th Congress
Congress authorized several changes to the 7(a) program during the 111th Congress in an effort to
increase the number and amount of 7(a) loans. Congress did not approve any changes to the 7(a)
program during the 112th Congress and has not approved any changes to the 7(a) program, to
date, during the 113th Congress.
The Obama Administration’s Proposals
During the 111th Congress, the Obama Administration supported congressional efforts to
temporarily subsidize fees for the 7(a) and 504/CDC loan guaranty programs and to increase the
7(a) program’s loan guaranty percentage from up to 85% of loans of $150,000 or less and up to
75% of loans exceeding $150,000 to 90%. Congress subsequently provided nearly $1.1 billion to
temporarily subsidize fees for the 7(a) and 504/CDC loan guaranty programs and to increase the
7(a) program’s maximum loan guaranty percentage to 90% for all standard 7(a) loans.
The Obama Administration also proposed the following modifications to several SBA programs,
including the 7(a) program:
• increase the maximum loan size for 7(a) loans from $2 million to $5 million;
• increase the maximum loan size for the 504/CDC program from $2 million to $5
million for regular projects and from $4 million to $5.5 million for
manufacturing projects;
• increase the maximum loan size for microloans to small business concerns from
$35,000 to $50,000;
• increase the maximum loan limits for lenders in their first year of participation in
the Microloan program, from $750,000 to $1 million, and from $3.5 million to $5
million in the subsequent years;
• temporarily increase the cap on SBAExpress loans from $350,000 to $1 million;
and
132 GAO, Small Business Administration: 7(a) Loan Program Needs Additional Performance Measures, GAO-08-
226T, November 1, 2007, p. 8, at http://www.gao.gov/new.items/d08226t.pdf.
133 SBA, Office of the Inspector General, SBA’s Administration of the Microloan Program under the Recovery Act,
December 28, 2009, p. 9, at http://www.sba.gov/sites/default/files/om10-10.pdf.
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• temporarily allow in FY2010 and FY2011, with an option to extend into FY2012,
the refinancing of loans for owner-occupied commercial real estate that are
within one year of maturity under the SBA’s 504/CDC program.134
Arguments for Increasing the SBA’s Maximum Loan Limits
The Obama Administration argued that increasing the maximum loan limits for the 7(a),
504/CDC, Microloan, and SBAExpress programs would allow the SBA to “support larger
projects,” which would “allow the SBA to help America’s small businesses drive long-term
economic growth and the creation of jobs in communities across the country.”135 The
Administration also argued that increasing the maximum loan limits for these programs would be
“budget neutral” over the long run and “help improve the availability of smaller loans.”136
Arguments Against Increasing the SBA’s Maximum Loan Limits
Critics of the Obama Administration’s proposals to increase the SBA’s maximum loan limits
argued that higher loan limits might increase the risk of defaults, resulting in higher guaranty fees
or the need to provide the SBA additional funding, especially for the SBAExpress program,
which has experienced somewhat higher default rates than other SBA loan guaranty programs.137
Others advocated a more modest increase in the maximum loan limits to ensure that the 7(a)
program “remains focused on startup and early-stage small firms, businesses that have
historically encountered the greatest difficulties in accessing credit,” and “avoids making small
borrowers carry a disproportionate share of the risk associated with larger loans.”138
Others argued that creating a small business direct lending program within the SBA would reduce
paperwork requirements and be more efficient in providing small businesses access to capital
than modifying existing SBA programs that rely on private lenders to determine if they will issue
the loans.139 Also, as mentioned previously, others argued that providing additional resources to
the SBA or modifying the SBA’s loan programs as a means to augment small business access to
capital is ill-advised. In their view, the SBA has limited impact on small businesses’ access to
capital. They argued that the best means to assist small business economic growth and job
creation is to focus on small business tax reduction, reform of financial credit market regulation,
and federal fiscal restraint.140
134 SBA, “Administration Announces New Small Business Commercial Real Estate and Working Capital Programs,”
February 5, 2010, at http://www.sba.gov/sites/default/files/sba_rcvry_factsheet_cre_refi.pdf.
135 Ibid.
136 Ibid.
137 Robb Mandelbaum, “Small Business Incentives Face a Hard Road in Congress,” New York Times, February 12,
2010, at http://boss.blogs.nytimes.com/2010/02/12/small-business-incentives-face-a-hard-road-in-congress/; and U.S.
Congress, House Committee on Small Business, House Committee on Small Business Views With Regard to the Fiscal
Year (FY) 2010 Budget, Letter from Nydia Velázquez, Chair, House Committee on Small Business, to John M. Spratt
Jr., Chair, House Committee on the Budget, 111th Cong., 2nd sess., March 11, 2009, p. 3.
138 U.S. Congress, House Committee on Small Business, Small Business Financing and Investment Act of 2009, report
to accompany H.R. 3854, 111th Cong., 2nd sess., October 26, 2009, H.Rept. 111-315 (Washington: GPO, 2009), p. 1.
139 Robb Mandelbaum, “Why Won’t the S.B.A. Lend Directly to Small Businesses?” New York Times, March 10, 2010,
at http://boss.blogs.nytimes.com/2010/03/10/why-wont-the-s-b-a-loan-directly-to-small-businesses/.
140 Susan Eckerly, “NFIB Responds to President’s Small Business Lending Initiatives,” Washington, DC, October 21,
2009, at http://www.nfib.com/newsroom/newsroom-item/cmsid/50080/; and NFIB, “Government Spending,”
(continued...)
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P.L. 111-5, the American Recovery and Reinvestment Act of 2009
(ARRA)
As mentioned previously, in 2009, ARRA provided an additional $730 million for SBA programs,
including $375 million to temporarily reduce fees in the SBA’s 7(a) and 504/CDC loan guaranty
programs ($299 million) and increase the 7(a) program’s maximum loan guaranty percentage
from up to 85% of loans of $150,000 or less and up to 75% of loans exceeding $150,000 to 90%
for all standard 7(a) loans ($76 million).141
P.L. 111-240, the Small Business Jobs Act of 2010
P.L. 111-240 provided $505 million (plus $5 million for administrative expenses) to extend the
7(a) program’s 90% maximum loan guaranty percentage and 7(a) and 504/CDC loan guaranty
programs’ fee subsidies through December 31, 2010 (later extended to March 4, 2011), or until
available funding was exhausted (which occurred on January 3, 2011). The act also made the
following changes to the SBA’s programs:
• increased the maximum loan size for 7(a) loans from $2 million to $5 million;
• temporarily increased for one year (through September 27, 2011) the cap on
SBAExpress loans from $350,000 to $1 million;
• increased the maximum loan size for the 504/CDC loans from $1.5 million to $5
million for regular projects, from $2 million to $5 million for projects meeting
one of the program’s specified public policy goals, and from $4 million to $5.5
million for manufacturers;
• increased the maximum loan size for the Microloan program from $35,000 to
$50,000;
• authorized the SBA to establish an alternative size standard for the 7(a) and
504/CDC programs that uses maximum tangible net worth and average net
income as an alternative to the use of industry standards and established an
interim size standard of a maximum tangible net worth of not more than $15
million and an average net income after federal taxes (excluding any carryover
losses) for the preceding two fiscal years of not more than $5 million; and
• allowed 504/CDC loans to be used to refinance up to $7.5 billion in short-term
commercial real estate debt each fiscal year for two years after enactment
(through September 27, 2012) into long-term fixed rate loans.142
The act also authorized the Secretary of the Treasury to establish a $30 billion Small Business
Lending Fund (SBLF) to encourage community banks to provide small business loans ($4 billion
was issued), a $1.5 billion State Small Business Credit Initiative to provide funding to
(...continued)
Washington, DC, at http://www.nfib.com/issues-elections/issues-elections-item/cmsid/49051/.
141 SBA, “Recovery Act Agency Plan,” May 15, 2009, at http://archive.sba.gov/idc/groups/public/documents/
sba_homepage/sba_recovery_act_plan.pdf.
142 P.L. 111-240, the Small Business Jobs Act of 2010, Section 1122. Low-Interest Refinancing Under the Local
Development Business Loan Program.
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participating states with small business capital access programs, and about $12 billion in tax relief
for small businesses.143 It also contained revenue raising provisions to offset the act’s cost and
authorized a number of changes to other SBA loan and contracting programs.
Legislative Activity During the 112th Congress
As mentioned previously, Congress did not approve any changes to the 7(a) program during the
112th Congress. However, several bills were introduced during the 112th Congress that would have
changed the program.
S. 1828, a bill to increase small business lending, and for other purposes, was introduced on
November 8, 2011, and referred to the Senate Committee on Small Business and
Entrepreneurship. The bill would have reinstated for a year following the date of its enactment the
temporary fee subsidies for the 7(a) and 504/CDC loan guaranty programs and the 90% loan
guaranty for standard 7(a) loans, which were originally authorized by ARRA and later extended
by several laws, including the Small Business Jobs Act of 2010.
H.R. 2936, the Small Business Administration Express Loan Extension Act of 2011, introduced
on September 15, 2011, and referred to the House Committee on Small Business, would have
extended a one-year increase in the maximum loan amount for the SBAExpress program from
$350,000 to $1 million for an additional year. The temporary increase in that program’s maximum
loan amount was authorized by P.L. 111-240, the Small Business Jobs Act of 2010, and expired
on September 27, 2011 (see Appendix).
S. 532, the Patriot Express Authorization Act of 2011, introduced on March 9, 2011, and referred
to the Senate Committee on Small Business and Entrepreneurship, would have provided statutory
authorization for the Patriot Express Pilot Program. This program was subsequently discontinued
by the SBA on December 31, 2013. The bill would have increased the program’s maximum loan
amount from $500,000 to $1 million, and it would have increased the guaranty percentages from
up to 85% of loans of $150,000 or less and up to 75% of loans exceeding $150,000 to up to 85%
of loans of $500,000 or less and up to 80% of loans exceeding $500,000.
Legislative Activity During the 113th Congress
H.R. 2451, the Strengthening Entrepreneurs’ Economic Development Act of 2013, was
introduced on June 20, 2013, and referred to the House Committee on Small Business. It would
have authorized the SBA to make direct loans of up to $150,000 to businesses with fewer than 20
employees. It would have also required the SBA to assess, collect, and retain a fee with respect to
the outstanding balance of the deferred participation share of each 7(a) loan in excess of $2
million that is no more than is necessary to reduce to zero the SBA’s cost of making the loan.
143 For further analysis of P.L. 111-240, the Small Business Jobs Act of 2010, see CRS Report R41385, Small Business
Legislation During the 111th Congress, by Robert Jay Dilger and Gary Guenther. For further analysis of the Small
Business Lending Fund, see CRS Report R42045, The Small Business Lending Fund, by Robert Jay Dilger. For further
analysis of the State Small Business Credit Initiative, see CRS Report R42581, State Small Business Credit Initiative:
Implementation and Funding Issues, by Robert Jay Dilger.
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H.R. 2461, the SBA Loan Paperwork Reduction Act of 2013, was introduced on June 20, 2013,
and referred to the House Committee on Small Business. It would have provided statutory
authorization for the Small Loan Advantage (SLA) pilot program. The SBA started that program
on February 15, 2011. It provided a streamlined application process for 7(a) loans of up to
$350,000 if the loan received an acceptable credit score from the SBA prior to the loan being
submitted for processing. The SBA adopted the SLA application process as the model for
processing all non-express 7(a) loans of $350,000 or less, effective January 1, 2014.
As mentioned previously, the Obama Administration has waived the up-front loan guaranty fee
and ongoing servicing fee for 7(a) loans of $150,000 or less approved in FY2014 and FY2015.
H.R. 2462, the Small Business Opportunity Acceleration Act of 2013, introduced on June 20,
2013, and referred to the House Committee on Small Business, would have made this fee waiver
permanent.
Also, the Obama Administration is waiving the up-front, 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 FY2015 (called the Veterans Advantage Program). S. 2143, the Veterans Entrepreneurship
Act, introduced on March 13, 2014, and referred to the Senate Committee on Small Business and
Entrepreneurship, would have made this fee waiver permanent. As mentioned previously, P.L.
113-235 provided statutory authorization to waive the 7(a) SBAExpress program’s guarantee fee
for veterans (and their spouses) in FY2015.
Concluding Observations
The congressional debate concerning the SBA’s 7(a) program during the 111th Congress was not
whether the federal government should act, but which federal policies would most likely enhance
small businesses’ access to capital and result in job retention and creation. As a general
proposition, some, including President Obama, argued 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.144
Others worried about the long-term adverse economic effects of spending programs that increase
the federal deficit. They advocated 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.145
In terms of specific program changes, increasing the 7(a) program’s loan limit, extending the 7(a)
program’s temporary fee subsidies and 90% maximum loan guaranty percentage, and establishing
an alternative size standard for the 7(a) program were all designed to achieve the same goal: to
enhance job creation by increasing the ability of 7(a) borrowers to access credit at affordable
144 Representative Nydia Velázquez, “Small Business Financing and Investment Act of 2009,” House debate,
Congressional Record, daily edition, vol. 155, no. 159 (October 29, 2009), pp. H12074, H12075; Senator Mary
Landrieu, “Statements on Introduced Bills and Joint Resolutions,” remarks in the Senate, Congressional Record, daily
edition, vol. 155, no. 185 (December 10, 2009), p. S12910; and The White House, “Remarks by the President on Job
Creation and Economic Growth,” December 8, 2009, at http://www.whitehouse.gov/the-press-office/remarks-
president-job-creation-and-economic-growth.
145 Susan Eckerly, “NFIB Responds to President’s Small Business Lending Initiatives,” Washington, DC, October 21,
2009, at http://www.nfib.com/newsroom/newsroom-item/cmsid/50080/; and NFIB, “Government Spending,”
Washington, DC, at http://www.nfib.com/issues-elections/issues-elections-item/cmsid/49051/.
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rates. However, determining how specific changes in federal policy are most likely to enhance job
creation is a challenging task. For example, a 2008 Urban Institute study concluded that
differences in the term, interest rate, and amount of SBA financing were “not significantly
associated with increasing sales or employment among firms receiving SBA financing.”146 The
study also reported that the analysis accounted for less than 10% of the variation in firm
performance. The Urban Institute suggested that local economic conditions, local zoning
regulations, state and local tax rates, state and local business assistance programs, and the
business owner’s charisma or business acumen also “may play a role in determining how well a
business performs after receipt of SBA financing.”147
As the Urban Institute study suggests, because many factors influence business success,
measuring the 7(a) program’s effect on job retention and creation is complicated. That task is
made even more challenging by the absence of performance-oriented measures that could serve
as a guide. Both GAO and the SBA’s OIG have recommended that the SBA adopt outcome
performance-oriented measures for its loan guaranty programs, such as tracking the number of
borrowers who remain in business after receiving a loan to measure the extent to which the
program contributed to their ability to stay in business.148 Other performance-oriented measures
that Congress might also consider during the 114th Congress include requiring the SBA to survey
7(a) borrowers to measure the difficulty they experienced in obtaining a loan from the private
sector and the extent to which the 7(a) loan or technical assistance received contributed to their
ability to create jobs or expand their scope of operations.
146 Shelli B. Rossman and Brett Theodos, with Rachel Brash, Megan Gallagher, Christopher Hayes, and Kenneth
Temkin, Key Findings from the Evaluation of the Small Business Administration’s Loan and Investment Programs:
Executive Summary (Washington, DC: The Urban Institute, January 2008), p. 58, at http://www.urban.org/
UploadedPDF/411602_executive_summary.pdf.
147 Ibid.
148 GAO, Small Business Administration: 7(a) Loan Program Needs Additional Performance Measures, GAO-08-
226T, November 1, 2007, p. 2, at http://www.gao.gov/new.items/d08226t.pdf; and SBA, Office of the Inspector
General, SBA’s Administration of the Microloan Program under the Recovery Act, December 28, 2009, pp. 6-7, at
http://www.sba.gov/sites/default/files/om10-10.pdf.
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Appendix. 7(a) Specialized Programs
The 7(a) program has several specialized programs that offer streamlined and expedited loan
procedures for particular groups of borrowers, including the SBAExpress, Export Express, and
Community Advantage programs. Lenders must be approved by the SBA for participation in
these programs.
SBAExpress Program
The SBAExpress program was established as a pilot program by the SBA on February 27, 1995,
and made permanent through legislation, subject to reauthorization, in 2004 (P.L. 108-447, the
Consolidated Appropriations Act, 2005).149 The program is designed to increase the availability of
credit to small businesses by permitting lenders to use their existing documentation and
procedures in return for receiving a reduced SBA guaranty on loans.150 It provides a 50% loan
guaranty on loan amounts up to $350,000.
In FY2014, the SBA approved 26,545 SBAExpress loans (51.0% of total 7(a) program loan
approvals), totaling $1.91 billion (9.9% of total 7(a) program amount approvals).151 The SBA
approved 26,844 SBAExpress loans, totaling $2.87 billion in FY2011; 23,149 SBAExpress loans,
totaling $1.78 billion in FY2012; and 21,761 SBAExpress loans, totaling $1.68 billion in
FY2013.152 The program’s higher loan volume in FY2011 was due, at least in part, to a provision
in P.L. 111-240, the Small Business Jobs Act of 2010, which temporarily increased the
SBAExpress program’s loan limit to $1 million for one year following enactment (through
September 27, 2011).
During the 112th Congress, H.R. 2936, the Small Business Administration Express Loan
Extension Act of 2011, was introduced on September 15, 2011, and referred to the House
Committee on Small Business. As mentioned previously, the bill would have extended the higher
loan limit for an additional year (through September 27, 2012).
SBAExpress loan proceeds can be used for the same purposes as those of the 7(a) program
(expansion, renovation, new construction, the purchase of land or buildings, the purchase of
equipment, fixtures, and lease-hold improvements, working capital, to refinance debt for
compelling reasons, seasonal line of credit, and inventory); except that participant debt restructure
cannot exceed 50% of the project and may be used for revolving credit. The program’s loan terms
149 The SBAExpress program was initially called FA$TRAK and offered a 50% loan guaranty on loans of up to
$100,000. FA$TRAK’s program guidance was issued on March 6, 1995. See SBA, “FA$TRAK,” 60 Federal Register
12271-12275, March 6, 1995. A brief history of the SBAExpress program is provided in SBA, “SBAExpress Program
Guide,” (effective October 1, 2002), p. 3, at http://www.sba.gov/sites/default/files/files/
sba_elending_clc_sbaexpress.pdf.
150 SBA, “The SBA Express Pilot Program: Inspection Report,” June 1998, p. 3, at http://archive.sba.gov/idc/groups/
public/documents/sba/oig_loarchive_980601.pdf.
151 SBA, “SBA Lending Statistics for Major Programs (as of 9/30/2014),” at http://www.sba.gov/sites/default/files/
aboutsbaarticle/WebsiteReport_asof9_30_2014.pdf.
152 SBA, “SBA Lending Statistics for Major Programs (as of 9/30/2013),” at http://www.sba.gov/sites/default/files/
SBA%207a%20and%20504%20Gross%20Loan%20Approval%20Volume%20as%2009-30-13.pdf; and SBA, “SBA
Lending Statistics for Major Programs (as of 9/30/2014),” at http://www.sba.gov/sites/default/files/aboutsbaarticle/
WebsiteReport_asof9_30_2014.pdf.
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are the same as those of the 7(a) program (the loan maturity for working capital, machinery, and
equipment (not to exceed the life of the equipment) is typically 5 years to 10 years; and the loan
maturity for real estate is up to 25 years, except that the term for a revolving line of credit cannot
exceed 7 years.
The SBAExpress loan’s interest rates are negotiable with the lender, subject to maximums. Rates
can be fixed or variable. Fixed rates may not exceed prime plus 6.5% on loans of $50,000 or less
and prime plus 4.5% on loans over $50,000. Variable interest rates are based on either the prime
rate (as published in The Wall Street Journal), the 30-day LIBOR plus 3.0%, or the SBA’s
optional peg rate (published quarterly in the Federal Register), plus 6.5% on loans of $50,000 or
less, and plus 4.5% on loans over $50,000.153 The program has the same fees as those used in the
7(a) program. To account for the program’s lower guaranty rate of 50%, lenders are allowed to
perform their own loan analysis and procedures and receive SBA approval with a targeted 36-
hour maximum turnaround time.154 Also, collateral is not required for loans of $25,000 or less.
Lenders are allowed to use their own established collateral policy for loans over $25,000.
The SBA has waived the up-front, 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 FY2015 (called
the Veterans Advantage Program). The SBA announced that the fee waiver was part “of SBA’s
broader efforts to make sure that veterans have the tools they need to start and grow a
business.”155
As mentioned previously, the SBA is also waiving the up-front loan guaranty fee and ongoing
servicing fee for 7(a) loans of $150,000 or less and 50% of the up-front loan guaranty fee on all
non-SBAExpress 7(a) loans to veterans exceeding $150,000 in FY2015.
In a related development, the SBA discontinued the Patriot Express Pilot Program on December
31, 2013. It provided loans of up to $500,000 (with a guaranty of up to 85% of loans of $150,000
or less and up to 75% of loans exceeding $150,000) to veterans and their spouses.156 It had been
in operation since 2007, and, like the SBAExpress program, featured streamlined documentation
requirements and expedited loan processing. Over its history, the Patriot Express Pilot Program
disbursed 9,414 loans amounting to over $791 million.157
153 SBA, “SBAExpress,” at http://www.sba.gov/content/sba-express.
154 Ibid.
155 SBA, “SBA Announces New Measures to Help Get Small Business Loans Into the Hands of Veterans,” November
8, 2013, at http://www.sba.gov/content/sba-announces-new-measures-help-get-small-business-loans-hands-veterans.
156 Eligible businesses were required to be owned and controlled (51% or more) by one or more of the following
groups: veteran, active duty military participating in the military’s Transition Assistance Program, reservist or national
guard member or a spouse of any of these groups, a widowed spouse of a service member who died while in service, or
a widowed spouse of a veteran who died of a service-connected disability. See SBA, “SOP 50 10 5(E): Lender and
Development Company Loan Programs,” (effective June 1, 2012), pp. 83, 127, at http://www.sba.gov/sites/default/
files/SOP%2050%2010%205(E)%20(5-16-2012)%20clean.pdf.
157 SBA, Office of Congressional and Legislative Affairs, correspondence with the author, February 21, 2014.
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Export Express
The Export Express program was initially established as a subprogram of the SBAExpress
program in 1998, and made a separate pilot program in 2000.158 It was made permanent through
legislation, subject to reauthorization, in 2010 (P.L. 111-240, the Small Business Jobs Act of
2010).
The Export Express program is designed to increase the availability of credit to current and
prospective small business exporters that have been in business, though not necessarily in
exporting, for at least 12 full months, particularly those small businesses needing revolving lines
of credit.159 Export Express loans may not be used to finance overseas operations, except for the
marketing and/or distribution of products/services exported from the United States.160
The program is generally subject to the same loan processing, making, closing, servicing, and
liquidation requirements as well as the same maturity terms, interest rates, and applicable fees as
the SBA Express program. Two key differences between the two programs is that the Export
Express program’s maximum loan amount is up to $500,000, and its guaranty rate is 90% for
loans of $350,000 or less, and 75% for loans exceeding $350,000.
Presently, there are 98 lenders authorized to make Export Express loans. These lenders are
located in 32 states and Puerto Rico.161 At the end of FY2013, 73 lenders had made 160 Export
Express loans to 151 small businesses.162
Community Advantage 7(a) Loan Initiatives
The SBA’s Community Advantage 7(a) loan initiative became operational on February 15,
2011.163 It is designed to increase lending to underserved low- and moderate-income
communities. The Community Advantage initiative offers a streamlined application process for
loans of up to $250,000. It, along with the now discontinued Small Loan Advantage program,164
158 SBA, “Announcement of SBA Export Express – a New Pilot Loan Guaranty Program for Exporters,” 65 Federal
Register 60491, October 11, 2000; and SBA, “Export Express Pilot Program,” 70 Federal Register 56962-56963,
September 29, 2005.
159 The 12-month in business requirement can be waived if “the applicant’s key personnel have clearly demonstrated
export expertise and substantial previous successful business experience, and the lender processes the Export Express
loan using conventional commercial loan underwriting procedures and does not rely solely on credit scoring or credit
matrices to approve the loan.” See SBA, “SOP 50 10 5(G): Lender and Development Company Loan Programs,”
(effective October 1, 2014), p. 104, at https://www.sba.gov/sites/default/files/sops/
SOP%2050%2010%205%20G%20FINALWEB%20VERSION%20-%20CLEAN%20Eff,%2010-1-2014.pdf.
160 Ibid., p. 118.
161 SBA, “Export Express Program Lenders,” at https://www.sba.gov/content/lenders-participating-sba's-export-
express-program-0.
162 SBA, Fiscal Year 2015 Congressional Budget Justification and FY 2013 Annual Performance Report, p. 58.
163 SBA, “Small Loan Advantage,” at http://www.sba.gov/content/small-loan-advantage; and SBA, “SBA Announces
New Initiatives Aimed at Increasing Lending in Underserved Communities,” December 15, 2010, at
http://www.sba.gov/content/sba-announces-new-initiatives-aimed-increasing-lending-underserved-communities.
164 The SBA’s Small Loan Advantage (SLA) program also became operational on February 15, 2011. It provided a
streamlined application process for 7(a) loans of up to $350,000 (initially $250,000) if the loan received an acceptable
credit score from the SBA prior to the loan being submitted for processing. The program provided the same loan
guaranty rate as that of the 7(a) program on loan amounts up to $350,000 (85% for loans up to $150,000 and 75% for
those greater than $150,000) and loan proceeds could be used for the same purposes as those of the 7(a) program. The
(continued...)
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replaced the Community Express Pilot Program, which was also designed to increase lending to
underserved communities. It was created by the SBA in May 1999 and ended on April 30,
2011.165
The Community Advantage pilot initiative is designed to increase lending in underserved
communities by increasing “the number of SBA 7(a) lenders who reach underserved
communities, targeting community-based, mission-focused financial institutions which were
previously not able to offer SBA loans.”166 These mission-focused financial institutions include
“Community Development Financial Institutions, SBA’s Certified Development Companies and
SBA’s nonprofit microlending intermediaries.”167 They are expected “to maintain at least 60% of
their SBA loan portfolio in underserved markets, including loans to small businesses in, or that
have more than 50% of their workforce residing in, low-to-moderate income (LMI) communities;
in Empowerment Zones and Enterprise Communities; in HUBZones; start-ups (firms in business
less than 2 years); and veteran-owned businesses and those that would be eligible for Patriot
Express.”168
As of February 10, 2015, there were 90 approved Community Advantage lenders, and 57 of them
had issued at least one Community Advantage loan. As of February 10, 2015, these 57 active
lenders had approved 1,124 Community Advantage loans amounting to $147.9 million.169
The initiative was originally announced as a three-year pilot program (through March 15, 2014)
and was subsequently extended through March 15, 2017.170 It provides the same loan guaranty as
that of the 7(a) program on loan amounts up to $250,000 (85% for loans up to $150,000 and 75%
for those greater than $150,000). The loan proceeds can be used for the same purposes as those of
the 7(a) program: expansion, renovation, new construction, purchase of land or buildings,
purchase of equipment, fixtures, and lease-hold improvements, working capital, refinance debt
for compelling reasons, seasonal line of credit, and inventory. The loan terms and guaranty fees
are also the same as those of the 7(a) program.171 The loan’s maximum interest rate is prime, plus
(...continued)
borrower’s interest rate was negotiable with the lender, subject to the same maximum rate limitations as those of the
7(a) program. Initially, the SLA program was restricted to PLP lenders. The program was expanded to all SBA lenders
on June 1, 2012. The SBA adopted the SLA application process as the model for processing all non-express 7(a) loans
of $350,000 or less, effective January 1, 2014.
165 U.S. Congress, House Committee on Small Business, Small Business Financing and Investment Act Of 2009, report
to accompany H.R. 3854, 111th Cong., 2nd sess., October 26, 2009, H.Rept. 111-315 (Washington: GPO, 2009), p. 7.
The SBA indicated that the Community Express Pilot Program “has had mixed outcomes,” providing loans “to new
businesses, minority businesses and other underserved sectors” but with “significantly higher default rates (almost 40%
of loans defaulted in certain cohorts) compared with other similarly sized 7(a) loans.” See SBA, “Community Express
Pilot Program,” 75 Federal Register 80562, December 22, 2010.
166 SBA, “Advantage Loan Initiatives,” at http://www.sba.gov/advantage.
167 Ibid.
168 Ibid.
169 SBA, Office of Congressional and Legislative Affairs, correspondence with the author, February 10, 2015. Of the
$147.9 million in approved Community Advantage loans, $106.795 million had been disbursed as of February 10,
2015.
170 SBA, “Community Advantage Pilot Program,” 77 Federal Register 67433, November 9, 2012.
171 SBA, “Advantage Loan Initiatives,” at http://www.sba.gov/advantage.
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6%.172 The program has an expedited approval process, which includes a two-page application for
borrowers and a goal of completing the loan approval process within 5 days to 10 days.173
The SBA has indicated that the Community Advantage initiative’s goal is to “leverage the
experience these institutions already have in lending to minority, women-owned and start-up
companies in economically challenged markets, along with their management and technical
assistance expertise, to help make their borrowers successful.”174
Author Contact Information
Robert Jay Dilger
Senior Specialist in American National Government
rdilger@crs.loc.gov, 7-3110
172 SBA, “Community Advantage Participant Guide,” p. 18, at http://www.sba.gov/sites/default/files/files/CA%20-
%20Participants%20Guide.pdf; and SBA, “Community Advantage Pilot Program,” 77 Federal Register 6619,
February 8, 2012.
173 SBA, “Community Advantage,” at http://www.sba.gov/content/community-advantage.
174 SBA, “SBA Announces New Initiatives Aimed at Increasing Lending in Underserved Communities,” December 15,
2010, at http://www.sba.gov/content/sba-announces-new-initiatives-aimed-increasing-lending-underserved-
communities. The SBA maintains a list of approved Community Advantage pilot program lenders on its website at
http://www.sba.gov/content/community-advantage-approved-lenders.
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