WASHINGTON — Today, as part of the work to reverse the gross financial mismanagement of the prior Administration, the U.S. Small Business Administration (SBA) announced it has restored lender fees to its 7(a) loan program. Waiving lender fees was one of the Biden-era practices that reduced the financial integrity of SBA lending programs at the expense of small businesses and taxpayers. These changes, along with a dramatic reduction in underwriting standards, ultimately drove the SBA’s core 7(a) lending program into negative cash flow for the first time in thirteen years – threatening its zero-subsidy status.
“Since its inception, the SBA’s 7(a) loan program has launched millions of small businesses, driving economic growth and job creation. But the Biden Administration’s actions to undermine the financial integrity of the program now threaten to leave taxpayers on the hook,” said SBA Administrator Kelly Loeffler. “To safeguard taxpayer-backed capital and small business formation, the SBA is taking immediate action to reverse these policies, starting with the restoration of lender fees to protect the future of the program.”
As the flagship SBA loan, the 7(a) loan guaranty offered through private lending institutions provides capital to qualified small businesses unable to borrow elsewhere. By statute, it is required to operate at “zero-subsidy,” or zero cost to taxpayers, and is funded through the collection of lender fees. Despite this mandate, the Biden Administration recklessly eliminated lender fees while simultaneously lowering underwriting standards for loans. Over the lifecycle of these loans, the Biden-era changes are projected to cost taxpayers billions.
After promulgating lax underwriting standards such as “Do What You Do” and approving a host of non-regulated non-bank lenders to originate 7(a) loans, defaults and delinquencies roughly doubled. At the same time, reduced fee revenue left the agency in a shortfall and unable to cover the cost of failed loans. From 2022 to 2024, the SBA projects that the Biden Administration failed to collect on over $460 million in upfront lender fees. As a result, the SBA’s 7(a) loan program saw negative cash flow of about $397M in FY 24 – the first instance of negative cashflow in over a decade.
