OVERVIEW OF THE FY25 PRESIDENT’S BUDGET REQUEST

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Yesterday, the White House released the FY25 President’s Budget Request. The budget request is the first step in the appropriations process each fiscal year and represents the President’s request to Congress for FY25 funding levels, as well as requested legislative changes that impact government-wide programs. In turn, Congress often uses the President’s annual budget request as a blueprint for drafting the FY25 appropriations bills.  

This first step in the FY25 budget process comes on the heels of last week’s passage of the first half of the FY24 appropriations bills, which occurred just in time to avoid a partial government shutdown, and while the remainder of the FY24 appropriations bills, one of which includes SBA authorizations and funding, still are not finalized.  These remaining six FY24 appropriations bills leave the rest of the government still operating on a short-term Continuing Resolution. Congress now has until March 22 to finalize and pass this last group of FY24 bills.

The budget request reveals a great deal of White House and agency funding and policy priorities, which the Administration is requesting for Congress to act upon.  As it relates to SBA, the Administration released the following details:

  • 7(a) Loan Program Authorization: $35 billion (flat request from last year, and the current authorization cap for FY23)
  • 7(a) Loan Program Subsidy Rate: Zero
  • 7(a) Loan Program Fees: No statutory fee increases were requested, and fee waivers are not announced by SBA until typically sometime in August/September at their discretion (this discretion is given to the Agency by statute). The fee waiver for upfront fees on SBA Express loans to Veterans and spouses of Veterans continues, since now permanently mandated by statute.
  • Secondary Market Guarantee Program Authorization: $15 billion (flat request from last year, and the current authorization cap for FY23)
  • New Policy Proposals:

A number of proposals were made by the Administration for Congressional consideration. Congress would need to act on these legislative changes before any such proposals went into effect.  As cited in the SBA FY 2025 Congressional Budget Justification and FY 2023 Annual Performance Report, these proposals include —

  • Increased 7(a) Loan Limit And, For Some Types of Loans, Increased Maximum SBA Guarantee Amount: The SBA requests Congress to increase the maximum loan amount (and corresponding maximum guarantee amount) for manufacturing and trade loans to $7.5 million (including the International Trade and Export Working Capital loans). 

This includes: 

o  The SBA requests Congress to increase the maximum loan amount for small manufacturers from $5,000,000 to $7,500,000 and the corresponding maximum guarantee amount from $3,750,000 to $5,625,000.

o  The SBA requests Congress to increase the maximum loan amount for International Trade Loans from $5,000,000 to $7,500,000 and the corresponding maximum guarantee amount from $4,500,000 to $6,750,000.

o  The SBA requests Congress to increase the maximum loan amount for Export Working Capital loans from $5,000,000 to $7,500,000, but the statutory request language is silent as to changing the corresponding maximum guarantee amount for EWCP loans, so it appears there are no proposed change to the existing 90 percent maximum guarantee amount for EWCP loans.

  • Increased 7(a) Loan Limit for All Other 7(a) Loans With A Corresponding Loan Guarantee Dilution: The SBA requests Congress to amend the statute that would “allow a lender to dilute their guaranty to meet the needs of the business when a single request exceed the established loan limit.” [The term “established loan limit” appears to refer to the current $5,000,000 maximum individual loan limit even though SBA also is recommending increasing the maximum loan size from $5,000,000 to $7,500,000.]  Under the requested change, when the “loan limit” is exceeded, the percentage of SBA’s guarantee would be decreased to remain in compliance with the current $3,750,000 limit on the maximum SBA guarantee amount that can be outstanding. Therefore, it appears that under this proposal, a standard 7(a) loan could be as large as $7.5 million but the maximum outstanding guarantee amount would remain at $3,750,000 resulting in a 50% guarantee” for loans at that maximum gross loan amount, and a proportionately higher guarantee percentage for loans less than that amount up to the full 75% guarantee on loans with a gross amount of $5,000,000.  The exceptions to this change are those types of loans listed above where the maximum SBA guaranteed portion would be increased.
  • New Direct Lending Program Within the 7(a) Loan Program: The White House documents highlight that “The Budget proposes a new direct 7(a) lending program, which would further enable SBA to address gaps in access to small dollar lending.” In its materials, SBA states:

“there remains a critical lack of affordable small loans…particularly in rural and other underserved communities. Section 7(a) of the Small Business Act authorizes the SBA to make direct general business loans to small businesses that cannot qualify for credit conventionally or through SBA guaranteed lending. The SBA requests a legislative change to increase the maximum allowable rate of interest on direct loans.” 

The text of the legislative change appears to increase the maximum allowable interest rate from Prime +1 to Prime +6; however, it remains unclear how SBA intends to fund direct loans or how such new program would be administered. It does seem as if this proposal would make the new direct loan program a part of the 7(a) Loan Program, and suggests that it would be limited to small dollar loans.

  • Secondary Market Fee: Continuing a request first made by the Trump Administration, this Administration requests legislative changes that would give the Agency authority to introduce a new annual fee of up to 0.05 percent per year on the outstanding balance of the pool certificates. The rationale for this fee is to “provide the SBA with additional flexibility to manage expected costs of the 7(a) Secondary Market Guarantee Program.” However, the Secondary Market Guarantee Program continues to operate at zero subsidy and the materials provided show a continued downward subsidy rate reestimate, meaning that the program continues to perform better than expected at zero cost.

As always, NAGGL will continue to dive into the details of these proposals, keep the industry updated, and take time with membership to better understand how these proposals from SBA could impact you.