Right after the Small Business Administration was forced to shutter its popular 7(a) loan guarantee program, lawmakers are sprinting to ensure the break in operations is brief.
In a voice vote last Thursday, the Senate passed a bill adding $4.75 billion of funding authority to 7(a), which had reached its current $18.75 billion ceiling. The House is expected to take up the measure Monday or Tuesday, Kelly McNabb, communications director for the House Small Business Committee said in an email to CU Journal affiliate American Banker Friday.
The congressional action will undoubtedly cheer lenders and borrowers, who were well on the way to making the 2015 fiscal year, which ends Sept. 30, a record one for 7(a). The agency has already guaranteed more than 45,000 7(a) loans, according to Ann Marie Mehlum, SBA's associate administrator for capital access, said in a blog on the agency's website Thursday.
SBA officials said they welcomed the Senate action and were looking for a quick turnaround in the House.
"We continue to work with the House of Representatives and are confident that it will promptly pass similar legislation, allowing the SBA to continue supporting American small businesses as they grow and create jobs to strengthen the nation's economy," Benjamin Chang, the SBA's associate administrator for communications and public liaison, said in a statement.
Some credit unions that participate in the loan program are also worried about the implications of its suspension — in the event the measure does not pass the House.
"We are definitely concerned," George M. Poitou, chief operating officer of SCE Federal Credit union, a $643-million institution based in Irwindale, Calif., told Credit Union Journal. "We have a number of SBA 7 (a) [loans] in the pipeline and until Congress addresses this issue (which we hope is soon) we can't help our members."
Melva McKay-Bass, senior vice president of business development at Suncoast Credit Union, a $6.5-billion institution based in Tampa, Fla., said any possible suspension of the 7(a) loan program would mean that any loans in the pipeline to Suncoast members would be briefly delayed until at least after the start of the new fiscal year on Oct. 1, 2015. She also noted the SBA is very important to the nation's entrepreneurs, as many businesses benefit from this program.
Perc Pineda, senior economist at CUNA, said the loan program must be extended especially during a time when the economy has not fully recovered.
"The unemployment rate continues to drop, thanks to small businesses who have been adding more jobs than have large businesses," Pineda told Credit Union Journal. "In fact, since January this year, ADP job numbers show that about 50% of total non-farm private sector jobs came from small businesses. Credit union member business loans are small business loans. Undoubtedly, credit unions continue to support the economy's recovery."
Pineda also noted that SBA partnered with NCUA earlier this year to expand small business lending through credit unions—the portion of loans that are guaranteed by the SBA does not count against credit unions' business loan cap.
And as of March 2015, 377 credit unions reported having outstanding SBA loans totaling $1.4 billion.
"Putting the SBA 7(a) program on hold will render new credit union SBA loans temporarily inaccessible until the new fiscal year," he added. "The effect will be 'net negative' for credit unions and other lending institutions, and deprive small businesses [which] have been clearly supporting economic recovery."
Pineda also warned that if the SBA 7(a) program remains inaccessible in the last two quarters of this year, that would mean a loss of $347.6 million in CU small business lending alone, and a loss of $638 million small business lending altogether.
"Raising the SBA's 7(a) loan program limit makes a lot of economic sense," Pineda concluded. "As an example of government participation — through loan guarantees — that clearly supports the macro economy, SBA's 7(a) loan program is a good one that, therefore, should not be temporarily suspended."
Rep. Nydia Velazquez, D-N.Y., introduced a bill last Tuesday that also called for increasing 7(a) funding authority for fiscal year 2015.
In hearings earlier this year on SBA's fiscal year 2016 budget, lawmakers indicated they planned to increase 7(a) funding authority to $23.5 billion. Now, a number of industry insiders are hoping Congress might go even higher, perhaps as high as $26 billion.
"This crisis has really heightened awareness of the need for adequate funding," said Arne Monson, president of Holtmeyer & Monson in Memphis, Tenn., a servicing firm that supports SBA lending at more than 400 banks.
"I've been working in SBA lending for 33 years, and this is the earliest in the fiscal year we've ever had" a funding crunch.
As late as the end of May, the 7(a) program still had $5 billion of funding remaining. As lending continued to increase, and lenders began to sense the increasing likelihood of a funding crunch, the pace of applications began accelerating. SBA received $3 billion in applications in the first three weeks of July alone, according to Chang.
The Senate bill includes a provision requiring SBA to submit regular reports to the House and the Senate including weekly totals of loans guaranteed, how much funding authority remains and an estimate of when the 7(a) program might run out of money.
Interestingly, it also requires the agency to detail how many of the loans it guarantees go into early default, how many of those borrowers are franchisees, and the steps the agency is taking to address nonperforming credits.
According to Monson, credit quality has been an issue for SBA in the past, with the delinquency rate for 7(a) loans running twice as high as the rate for conventional bank loans in some years. Recently, 7(a) delinquencies have trended much closer to the numbers for conventional loans, Monson said.
Indeed, SBA's overall asset quality appears to be holding up all right, despite the record level of guarantees. Through March 31 — the halfway point of the fiscal year — SBA reported charging off $509.3 million of 7(a) loans, about 0.72% of the program's $70.7 billion portfolio.