Steve Keen: Safeguarding SBA

The SBA 7(a) loan program makes it easier for community banks to help small businesses achieve their potential.

A new law prevents disruptions to the SBA 7(a) lending program

By Steve Keen, ICBA

The hits just keep on coming in Washington for community banks. With regulators implementing ICBA-advocated regulatory relief, policymakers have meanwhile approved pro-community bank reforms to strengthen the Small Business Administration 7(a) program.

The SBA 7(a) loan program allows community banks to leverage their unique underwriting skills to more effectively serve the small businesses in their communities. Community banks use the program to provide credit to a broader range of borrowers who would not qualify for a conventional loan while ensuring sound underwriting. Qualifying entrepreneurs can apply for 7(a) loans if they can demonstrate a need for funds, have a sound business purpose and have tried to use other financial resources.

Signed, sealed, delivered

The bipartisan Small Business 7(a) Lending Oversight Reform Act (H.R.4743 and S.2283) was introduced in January by Rep. Steve Chabot (R-Ohio) and Sen. Jim Risch (R-Idaho). After quickly advancing through Congress, the House version was signed into law in June. – Rep. Steve Chabot, Sen. Jim Risch.

While the 7(a) program is popular with many community banks, it has experienced disruptions. In 2015, the program reached its legal lending limit, which is authorized by Congress. While the program is fully funded by user fees—not taxpayer dollars—lawmakers must approve a program authorization level every year. When that cap is reached, lending under the program must be suspended. That is exactly what happened in the summer of 2015, bringing the program to an abrupt halt.

Following ICBA advocacy in 2015, Congress passed emergency legislation raising the funding cap and ensuring all 7(a) loans would be funded for that fiscal year. A longer shutdown would have cut off the thousands of small businesses that rely on this program for payrolls, investment and expansion—putting their businesses and local economic growth in jeopardy. Policymakers, community bankers and small businesses recognized the need for a long-term solution.

Working for you
In response, ICBA has worked with policymakers to advance reforms that will ensure the continued availability of the program to community banks and borrowers. Those efforts ultimately paid off with the bipartisan Small Business 7(a) Lending Oversight Reform Act (H.R.4743), which was introduced in January alongside a Senate companion bill and signed into law by President Donald Trump in June.

As ICBA community banker Cynthia Blankenship told the House Small Business Committee earlier this year, H.R.4743 includes targeted reforms that will promote a robust and sustainable 7(a) program. To avoid disruptions like that experienced in 2015, H.R.4743 stabilizes program funding by allowing the SBA to lift the cap on general business loans by up to 15 percent of the limit if it is determined the cap will be reached.

Quick stat

Community banks make more than


of small-business loans under $1 million

The law also improves the integrity of all SBA programs by codifying the SBA’s Office of Credit Risk Management, which manages credit risk and enforces program requirements. The law ensures the office director is qualified for the post, provides guidelines for lender reviews, codifies lender appeals rights and increases transparency in the office’s budget. It also codifies the Lender Oversight Committee, which reviews the office’s formal enforcement recommendations, guaranteeing its continued existence from administration to administration. With the rising popularity of the 7(a) program, these reforms will promote proper oversight.

Additionally, H.R.4743 safeguards the 7(a) program from abuse by codifying the SBA’s “Credit Elsewhere Test,” which requires lenders to fully substantiate and document the reasons a given applicant cannot be served with conventional credit. ICBA fully supports this test as an appropriate measure to ensure the program is used responsibly.

Community banks are the nation’s leading small-business lenders—making more than 60 percent of small-business loans under $1 million while holding less than 20 percent of U.S. banking industry assets. These loans, which support a sector responsible for more job creation than any other, cannot be duplicated by larger and more remote institutions.

Ultimately, the Small Business 7(a) Lending Oversight Reform Act will help maintain the viability of an important lending tool, ensuring its longevity for borrowers and lenders. ICBA will keep working to ensure sufficient funding for and access to the various SBA lending programs to help community banks continue fostering a vibrant small-business sector.

There’s more online

This is just one front in ICBA’s fight for community banks. To learn more about the Small Business 7(a) Lending Oversight Reform Act and other recent policy successes, visit

Steve Keen ( is ICBA vice president of congressional relations.