Small Business Administration 7(a) Loan Guaranty Program

This document is being prepared for the exclusive use of BRANDT HERSHMAN at BARNES & THORNBURG LLP

Small Business Administration 7(a) Loan Guaranty Program

Updated April 2, 2020

Congressional Research Service R41146

This document is being prepared for the exclusive use of BRANDT HERSHMAN at BARNES & THORNBURG LLP

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 the agency's flagship loan program. It derives its name 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 FY2019, the SBA approved 51,907 7(a) loans totaling nearly $23.2 billion. The average approved 7(a) loan amount was $446,487. The total number and amount of 7(a) loans approved (and actually disbursed) is expected to increase dramatically this fiscal year due to changes to the 7(a) program included in P.L. 116-136, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

This report discusses the 7(a) 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, this report discusses recent congressional and SBA actions to enhance small businesses' access to capital, including actions taken during and immediately following the Great Recession (2007-2009) and, more recently, to address the COVID-19 pandemic's adverse economic impact on the national economy.

Among its key features, the CARES Act:

establishes a Paycheck Protection Program under Section 7(a) of the Small Business Act to provide "covered loans" with a 100% SBA loan guarantee, a maximum term of 10 years, and an interest rate not to exceed 4% to assist small businesses and other organizations that have been adversely affected by COVID19. A covered loan is defined as a loan made to an eligible recipient from February 15, 2020, through June 30, 2020. SBA guidance indicates that the loans will have a two-year term at a 0.5% interest rate;

waives both the one-time up front loan guarantee fee and annual servicing fee, the no credit elsewhere requirement, and the requirements for collateral and a personal guarantee for a covered loan;

expands eligibility for a covered loan to include currently eligible businesses and any business, 501(c)(3) nonprofit organization, 501(c)(19) veteran's organization, or tribal business not currently eligible that has not more than 500 employees or, if applicable, the size standard in number of employees established by the Administration for the industry in which they operate. Sole proprietors, independent contractors, and eligible self-employed individuals are also eligible;

under specified conditions, provides for the complete payment deferment relief on a covered loan for not more than one year, and similar relief for six months on existing 7(a) loans in a regular servicing status starting on the next payment due date; and

under specified conditions, provides for loan forgiveness of covered loans.

Congressional Research Service

This document is being prepared for the exclusive use of BRANDT HERSHMAN at BARNES & THORNBURG LLP

Small Business Administration 7(a) Loan Guaranty Program

The Appendix provides a brief description of the 7(a) program's SBAExpress, Export Express, and Community Advantage programs.

Congressional Research Service

This document is being prepared for the exclusive use of BRANDT HERSHMAN at BARNES & THORNBURG LLP

Small Business Administration 7(a) Loan Guaranty Program

Contents

Small Business Administration Loan Guaranty Programs .............................................................. 1 Borrower Eligibility Standards and Program Requirements ........................................................... 3

Borrower Eligibility Standards.................................................................................................. 3 Borrower Program Requirements.............................................................................................. 4

Use of Proceeds .................................................................................................................. 4 Loan Amounts..................................................................................................................... 5 Loan Terms, Interest Rate, and Collateral........................................................................... 5 Lender Eligibility Standards and Program Requirements ............................................................... 7 Lender Eligibility Standards ..................................................................................................... 7 PLP Lenders .............................................................................................................................. 7 Lender Program Requirements.................................................................................................. 8 The Application Process ..................................................................................................... 8 SBA Guaranty and Servicing Fees.................................................................................... 12 Lender Packaging, Servicing, and Other Fees .................................................................. 15 Program Statistics.......................................................................................................................... 16 Loan Volume ........................................................................................................................... 16 Appropriations for Loan Subsidy Costs .................................................................................. 18 Administrative Expenses......................................................................................................... 19 Use of Proceeds and Borrower Satisfaction ............................................................................ 19 Borrower Demographics ......................................................................................................... 20 Congressional Issues ..................................................................................................................... 20 Access to Capital..................................................................................................................... 20 Program Administration .......................................................................................................... 22 Oversight of 7(a) Lenders ................................................................................................. 22 Outcome-Oriented Performance Measures ....................................................................... 25 Legislative Activity During the 111th Congress............................................................................. 26 The Obama Administration's Proposals.................................................................................. 26 Arguments for Increasing the SBA's Maximum Loan Limits.......................................... 27 Arguments Against Increasing the SBA's Maximum Loan Limits .................................. 27 P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA)......................... 27 P.L. 111-240, the Small Business Jobs Act of 2010 ................................................................ 28 Legislative Activity During the 112th Congress............................................................................. 29 Legislative Activity During the 113th Congress............................................................................. 29 Legislative Activity During the 114th Congress............................................................................. 30 Legislative Activity During the 115th Congress............................................................................. 32 Legislative Activity During the 116th Congress............................................................................. 34 Concluding Observations .............................................................................................................. 34

Tables

Table 1. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Summary of Major Provisions ..................................................................................................... 2

Table 2. SBA Annual Service and Guaranty Fees, FY2020 .......................................................... 14

Congressional Research Service

This document is being prepared for the exclusive use of BRANDT HERSHMAN at BARNES & THORNBURG LLP

Small Business Administration 7(a) Loan Guaranty Program

Table 3. 7(a) Loan Guaranty Program, Loan Volume, FY2007-FY2019 ...................................... 16 Table 4. Business Loan Credit Subsidies, 7(a) and 504/CDC Loan Guaranty Programs,

FY2007-FY2020 ........................................................................................................................ 18 Table A-1. SBAExpress Loan Approvals, FY2011-FY2019 ......................................................... 36 Table A-2. Export Express Loan Approvals, FY2011-FY2019..................................................... 39 Table A-3. Community Advantage Loan Approvals, FY2011-FY2019 ........................................ 41

Appendixes

Appendix. 7(a) Specialized Programs ........................................................................................... 36

Contacts

Author Information........................................................................................................................ 42

Congressional Research Service

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