Wednesday, February 26, 2025 Dear NAGGL Membership, This afternoon, the Senate Committee on Small Business & Entrepreneurship will be holding a hearing at 2:30 PM (ET) titled “Hearing from Lenders: Managing Risk for the Long-Term in the 7(a) Loan Program” [you can watch live or anytime after the hearing ]. You can expect to hear lots of discussion on the policy changes from the past two and a half years, how those policy changes have impacted early performance metrics, and what the new team at SBA should do to address these concerns. NAGGL submitted a Statement for the Record to the Committee, which you can read in full . I promise it is worth a read because it communicates all of the valuable feedback NAGGL receives from our membership when it comes to the industry’s views. But I also thought it was important to reach out to you all personally. I understand it can feel uneasy hearing that there are concerns in DC when it comes to the program that you all rely upon to responsibly and diligently deliver critical capital to over 70,000 small businesses a year. So, here’s what you need to know: The state of the 7(a) Loan Program is strong: the average repurchase rate on defaulted loans has remained below 1% over the past 10 years, total recovery rates on collateral remains strong, and FY24 shows a historically low charge-off rate of 0.56%, outperforming four of the past ten Fiscal Years.
Any discussion of early indicators of performance concerns in conjunction with the previous Administration’s policy changes must be seen in the context of this bigger picture of overall health, with decades of strong performance. NAGGL will always be a voice for both our membership, and the long-term integrity of the program. We must be prudent lending watchdogs—otherwise we are not doing right by you, the program, or the borrowers we serve. It is because of this core mission that NAGGL has staked out a consistent case since October 2022, warning that the previous Administration’s policies have the potential to do harm to both the program and the borrowers. What are you going to hear from the Hill? Early default rates have increased by 107% since the policy changes were put into effect, according to data disclosed in the Lender Portal provided by SBA to lenders on a quarterly basis. NAGGL will continue to advocate that a handful of common-sense changes to the SOP would quickly restore many of the core prudent underwriting policies we relied upon for decades, and reverse these early performance trends. You have also undoubtedly heard reports that the 7(a) program is operating at a negative cash flow. This is not to be confused with a subsidy rate problem—the 7(a) program is still operating at zero subsidy. However, cash flow trends can be an important indicator to the effectiveness of both policy and program management that can lead to subsidy problems down the road. Here too, NAGGL has a clear advocacy message on your behalf: if SBA started collecting fees, which the previous SBA did not do on more than 85% of 7(a) units for the past two Fiscal Years, the program would likely no longer have a cash flow problem. Fee waivers are a great tool—when we can afford them. But, fee waivers cannot be more important than ensuring the 7(a) Loan Program remains at zero subsidy, and therefore, continues to be available and at a reasonable cost for the lenders and small businesses that rely upon it. Rest assured, NAGGL’s consistent drumbeat is this: the 7(a) Loan Program is not broken. This is not a program that has a track record of performance concerns or cash flow losses. This is a program that is wildly successful. But we have real work before us—policy tweaks and reevaluating fee waivers must be tackled quickly to reverse these trends we are catching early. And NAGGL will continue to be your advocate to make sure that we do just that. NAGGL will continue to work with Capitol Hill and the Administration to get the job done. And we are encouraged and enthusiastic about our work with Administrator Loeffler and her team—NAGGL will be bringing all of your voices to that table. I never cease to be impressed by NAGGL’s membership—your dedication to helping Main Street America grow and thrive is seen in the incredible reach of the 7(a) program. Reach out anytime to communicate with us at [email protected] –we are successful because we hear your feedback. And please consider joining one of NAGGL’s 17 committees—it’s a great way to make sure your voice is heard regularly. Thank you for all you do and, for our part, NAGGL will continue to represent your voice— |
