US Government Policy On SMB Lending In Flux

U.S. President Donald Trump announced over the weekend that U.S. Treasurer Jovita Carranza is his pick to lead the Small Business Administration (SBA), after its current chief, Linda McMahon, announced on Friday (March 29) that she will leave the post.

“Jovita was a great Treasurer of the United States, and I look forward to her joining my Cabinet!” said Trump in a tweet announcing the nomination, according to Reuters.

Carranza has a history at the SBA, serving as its deputy administrator between 2006 and 2009. Her rise to the position of SBA chief is not expected to disrupt the status quo, but she would step into the seat at a time of broader controversy at the SBA, surrounding its 7(a) small business lending program.

Last year, the U.S. Senate passed legislation that increased the SBA’s authority over the program, bolstering its credit risk management office, and increasing its oversight of its lending partners that facilitate the financing of small business loans via the program. At the time, the legislation garnered support from the American Bankers Association and the National Association of Federally-Insured Credit Unions.

However, the latest initiative from the SBA has stirred controversy, anger and confusion among small business advocates. The most controversial of the changes it initiated for its 7(a) loan program included a proposed hike in fees to cover 2020 fiscal year costs, so as to run the program if the SBA could not receive $99 million from Congress. According to reports, the SBA cited expectations of more bad loans as the reasoning behind the request.

In a statement, National Association of Government Guaranteed Lenders CEO and President Tony Wilkinson said the fee increase request is “kind of shocking,” considering the 7(a) program’s record-low charge-off rate of 0.51 percent at the end of the 2018 fiscal year, American Banker reported. “The portfolio’s performance has been quite good,” he noted. “They crossed the line with this budget.”

He added that the hiked fees are likely to pass costs down to small business borrowers, and limit their ability to access capital.

Policymakers have raised those concerns, too. Representative Nydia Velázquez (D-NY), chairwoman of the House Small Business Committee, said in a statement that the fee increases “would shift costs onto small business borrowers and lenders.” Senator Ben Cardin (D-MD), ranking minority member on the Small Business Committee, said the fee proposals are “another sign [that] small businesses are not a priority, but an afterthought, for the Trump administration.”

American Banker said the SBA withheld any comment on the matter before official testimony. The Senate Small Business Committee met last week, while the House Small Business Subcommittee on Economic Growth, Tax and Capital Access is preparing to hold a hearing this week to explore the budget and proposed fee increase.

During last week’s “Reauthorization of the SBA’s Access to Capital Programs” hearing, Evergreen Business Capital President and CEO, and National Association of Development Companies (NADCO) Board Secretary and Executive Committee Member, Patricia Kibbe delivered testimony, urging against the proposed fee hikes.

“To do so would be a harmful mistake,” she told policymakers of the initiative. “Adding on additional fees to small businesses punishes our entrepreneurs, and hinders economic development that emanates from the small businesses and [Certified Development Companies (CDCs)].”

As lawmakers consider the arguments, the latest data from the U.S. Chamber of Commerce revealed that nearly half of small businesses surveyed have absorbed higher costs of banking services and loans, with two-thirds noting that higher bank capital charges have coincided with increased costs or other challenges.

“While more businesses than not say that their ability to raise equity has improved,” the Chamber’s report stated, “the rate of improvement has seen a stark decrease over time.”