Today, U.S. Senator David Vitter (R-La.), Chairman of the Senate Committee on Small Business and Entrepreneurship (SBC), and SBC Ranking Member Senator Jeanne Shaheen (D-N.H.) introduced legislation to strengthen the Small Business Administration’s (SBA) flagship 7(a) loan program by strengthening oversight and thereby ensuring it is able to continue supporting entrepreneurs as they start and grow their businesses. The bipartisan legislation would increase accountability by giving the Small Business Administration (SBA) enforcement tools to conduct effective oversight within the SBA’s 7(a) loan guaranty program.

“Small business 101 dictates the importance of capital to growing a successful business, and the SBA’s 7(a) loan guaranty program has been a very helpful partner for millions of entrepreneurs in the last several years. But at the end of the day, it’s important to remember that American taxpayers are on the hook for whatever may happen with that government guaranty,” said Senator Vitter. “My bill will help mitigate the risk on American taxpayers and improve the quality of 7(a) loans without detracting from what credit unions and private banks offer. This increased accountability for SBA loans is a win-win for small businesses, taxpayers, and for both government and private lenders.”

“When I talk to small business owners across New Hampshire, one of the concerns I hear regularly is that access to affordable credit continues to be a major hurdle,” said Senator Shaheen. “The SBA’s 7(a) program enjoys broad bipartisan support because it is so vital to our nation’s small businesses and our economy. I’m glad to be able to work with Chairman Vitter on this legislation to provide additional tools to the SBA to ensure that the program is operated with integrity.”

From 2012 to 2016, the 7(a) loan program has nearly doubled in size annually, which has required five authorization cap increases in the past three years. As the program grows, the risk on taxpayers also increases. The Vitter-Shaheen legislation would increase accountability on the front-end to improve the quality of the government-guaranteed loans.

Specifically, the legislation would allow for increased oversight and efficiency in SBA’s successful 7(a) loan guaranty program through the following provisions:

  • Bolstering the enforcement authority of the Office of Credit Risk Management (OCRM) and its Director to conduct oversight of lenders within the program;
  • Lowering the split fee cap on secondary market sales from 110% to 108%;
  • Managing program risk by requiring the SBA to report to Congress on a loan portfolio’s risk and areas of concern;
  • Ensuring that lenders’ SBA portfolios are not overly concentrated in a single industry or in 100% financing; and
  • Redefining “credit elsewhere” to focus on the borrower’s ability to obtain credit as opposed to a lender’s ability to provide it.

The Vitter-Shaheen legislation has the support of the National Association of Government Guaranteed Lenders, the American Bankers Association, and the Independent Community Bankers of America.

The Senate Small Business Committee will hold a hearing on Thursday, May 26, 2016, with SBA Administrator Maria Contreras-Sweet to discuss oversight of the agency’s lending programs. Click here for more information.

In addition to Vitter and Shaheen, original co-sponsors of the bill include Senators Kelly Ayotte (R-N.H.), Jim Risch (R-Idaho), and Gary Peters (D-Mich.).