Bipartisan Small Business Leaders Call on SBA to Pause Loan Program
A group of bipartisan small business leaders has called on the SBA to delay changes to its 7(a) loan program. Learn why.
Letter questions leadership following unexplained departure of lending official.
The Biden Administration should delay its controversial changes to its 7(a) lending program following the unexpected departure of Patrick Kelley, who administered the agency’s lending programs, Republican and Democratic leaders of the congressional Small Business Committees said Tuesday.
Kelley’s departure as associate administrator for the office of capital access “leaves a void in leadership at a time when such leadership will be key in overseeing the orderly implementation of the new lending rules,” the lawmakers said, in a letter to SBA Administrator Isabella Casillas Guzman.
The letter was signed by Sen. Ben Cardin, D-Md., chairman of the Senate Small Business Committee; the panel’s Ranking Republican, Joni Ernst of Iowa; House Small Business Committee Chairman Roger Williams, R-Tx., and the panel’s ranking Democrat, Rep. Nydia Velázquez of New York.
The agency has not given a reason for Kelley’s departure.
Backstory and Context
The move comes just weeks after Kelley testified before both committees, “where legitimate bipartisan concerns were expressed regarding the effects that these new rules could have on the integrity of SBA’s loan programs,” the lawmakers wrote.
The Biden Administration has announced its intention to open the 7(a) lending program to three new Small Business Lending Companies.
Credit union trade groups have vehemently opposed the change, contending that the expansion opens the program to fintech lenders who have no prudential regulator as credit unions and banks have.
Further Concern From Group Representing CUs
Those concerns were echoed Wednesday during a hearing of the House Small Business Committee.
“In my 40-year career in this program, I have never seen such sweeping changes that provide more of a recipe for disaster,” said Tony Wilkinson, president/CEO of the National Association of Government Guaranteed Lenders (NAGGL) since December 1987.
NAGGL is a national trade group representing credit unions, banks, CDFIs and other entities that participate in the 7(a) program.
“The concern with these rules is that it has removed the guardrails while bringing in entities that have no prudential regulator and SBA is unable to monitor and regulate these entities appropriately,” he added.
Wilkinson warned further that the changes to the program inevitably will lead to higher losses and that if loan costs increase to the point where existing loans do not cover losses, the program could shut down unless Congress bails it out.
Banking Group in Agreement
A witness representing the Independent Community Bankers of America testified that she too is concerned about the expansion.
Alice Frazier, president/CEO of the Bank of Charles Town in Charles Town, W.V., said the new rules were rushed through the regulatory process and recommended that the SBA “hit the pause button, convene a working group of existing SBA lenders to determine how we can better align the program with the SBA mission of reaching the smallest businesses and entrepreneurs.”
She added that on-line lending options fail to provide the services offered by a community bank.
“Online-only lending can never be a substitute for on-the-ground community bank lending,” Frazier said. “The business model of a nonbank fintech—snap approval or rejection of loan and quick disbursement of funds—is often not in the borrower’s best interest.”