As always, around the time leading up to a government funding deadline, NAGGL is flooded with questions from our members about what is going to happen and what it all means. And as always, we will make sure to keep our membership as informed as possible during these uncertain times.
Tony and Kristen filmed a special edition of the NAGGLNOW podcast to break it all down so that you can watch anytime. And below is a brief synopsis of the current state of play that all 7(a) lenders need to know:
1. March 14 Expiration of Federal Government Funding:
The current Continuing Resolution (CR), which funds the government in the absence of a full-year FY25 funding package, expires next Friday, March 14 at midnight.
It is a given at this point that there will not be a full-year FY25 funding bill to pass by March 14. This leaves another CR or a government shutdown as the other two possibilities that always exist ahead of any government funding deadline.
Republicans in both the House and Senate are considering either another short-term CR or long-term CR that would run through September 30. This would keep funding and authorization levels at FY24 levels, which for the 7(a) program is $35 billion and for the Secondary Market Guarantee Program (SMGP) is $15 billion.
Given the slim margins in the House and the current posturing on both sides of the aisle, the path forward for both of these CR proposals is still unclear. And until the text of the CR is released and we inch closer to the deadline, it is impossible to predict what will happen.
TOPLINE TAKEAWAY: As we continue to track and assess this uncertainty, with 9 days left until the CR deadline, we encourage you all to take this landscape into consideration.
As you all know, a government shutdown means that all new loan originations and new pooled sales on the secondary market stop, as well as non-essential governmental functions.
2. Lack of Anomaly Language in the Current CR
In a separate concern from a government-wide funding deadline, there is a different issue to track regarding the availability of authorization for the 7(a) program leading up to March 14.
Under CRs, programs are given prorated apportionments during the CR period based on the previous FY’s authorization. Some programs receive an apportionment anomaly—this means that the portfolio will not be restricted by a CR prorated cap during the CR period, but, instead, can draw down on the previous FY’s full authorization levels during the CR.
To put in the context of 7(a) lending, without an anomaly, lenders can only lend up to $15.82 billion between October 1- March 14. With an anomaly, we could draw down on FY24’s full authorization availability, $35 billion, without being restricted by prorated authorization caps tied to certain dates. This does not impact increasing any authorization level, rather anomalies impact the pace of available authorization during a CR.
From FY15-FY23, the 7(a) program had an apportionment anomaly in every CR. In FY24 and the current FY25, Congress has unfortunately NOT included an anomaly for the 7(a) program in the CRs.
Why it affects you?If 7(a) lending exceeds the prorated apportionment of $15.82 billion during this current CR through March 14, the program has run out of authority during the CR. That means 7(a) lending shuts down until the next prorated amount is apportioned in the next CR. This is called a programmatic shutdown, which happens when there is no longer available individual program authorization and can occur before CRs expire when there is not an apportionment anomaly, as opposed to a government shutdown concern that can happen after CRs expire without another funding measure of some kind passed into law.
Here is where 7(a) volume during this current CR apportionment stands as of Wednesday, March 5:
As of March 4, total 7(a) gross volume since October 1 is now $14,988,635,600 (remember we have $15.820 billion in our current CR apportionment until March 14)
Tuesday, March 4 alone saw $193.1 million in gross volume (up from yesterday’s March 3 gross volume of $151.31 million)
The remaining available 7(a) authority during this current CR apportionment has now dipped below the $1 billion mark with $831,987,688 million available in authority over the next 10 days (up to and including March 14 and including today March 5).
This remaining authorization allows for about $83.2 million/day over the next 10 days, which is down from availability earlier this week (which was $93 million/day based on Tuesday, March 4 volume and $98 million/day based on Monday, March 3 volume).
Reminder that cancellations will play a role in authorization availability, and the above is based on gross volume.
Since the 7(a) program does not have a scheduled outflow (no one can predict what volume lenders will generate on a given day as you all answer small business needs), without an apportionment anomaly, it becomes a game of guesswork and tracking daily volume to see if 7(a) will remain operational during a CR. Not only is this not the intent of CRs (which are meant to ensure programs and the government remain operational), but it’s misguided policy for lenders and borrowers who rely on the stability of the program for the capital small businesses need when they need it.
NAGGL continues to advocate before Congress and the Administration for the need for anomaly language for the 7(a) program in any future CR. NAGGL has been educating its membership for years on the importance of the program having an ‘apportionment anomaly’ in any CR, but we’ve been especially tracking and updating you all on this issue this FY.
We take the enormous responsibility of making sure you are informed very seriously. You all have been asking what is going to happen March 14 and where our current authorization levels stand under a CR, and we will continue to serve the role of keeping you informed of all possibilities on the table. As always, NAGGL will update you with the most important developments, and please reach out anytime to [email protected] with anything you need.
