Senate Considers Bill to Increase SBA Oversight

Senator David Vitter (R-LA) recently introduced the Small Business Lending Oversight Act of 2016, S. 2992.  This legislation aims to strengthen oversight procedures within the Small Business Administration (SBA)’s 7(a) loan program, which provides small businesses with loans of up to $5 million from bank and non-bank lenders.

In 2015 alone, the program approved over 39,000 loans, totaling almost $14 billion dollars to help finance small businesses, which is estimated to have helped support 632,000 jobs. With 56.1% of American employment coming from small businesses, the changes could have wide-reaching effects from small states to large ones. While large states like California and Texas have the largest number of small businesses, rural states like Montana and Wyoming would be the most affected by these proposed changes, as 67.6% and 62.3% of their employment is made up of small businesses.

Ever since the 2008 recession the program has grown dramatically and this has led some to believe that increased oversight is necessary to accommodate the increased load. S. 2992 seeks to give the SBA’s oversight office, the Office of Credit Risk Management (OCRM), more power when it comes to dealing with lenders who violate provisions of the program. The director will now be able to issue verbal warnings, assess civil fines, and even prohibit companies from participation in the program according to the severity of their violations. In order to financially support these new duties for the OCRM, the SBA will also be charging an additional .03% fee for each approved loan.

The bill will also look to reduce risk by conducting annual risk analyses of its loan portfolio and issuing regulations to prevent further risky lending. These regulations include, preventing lenders from concentrating more than 20% of their portfolio in one industry, preventing lenders from financing in excess of 100% of project costs, and preventing lenders from selling or pledging more than 85% of their loans

Although the bill was only recently introduced, it has already garnered some significant support from lenders in the industry. The American Banking Association, the National Association of Government Guaranteed Lenders, and the Independent Community Bankers of America have all prepared statements in favor of the bill.

Upon introduction, the bill was swiftly referred to the Committee on Small Business and Entrepreneurship, which Sen. Vitter is the current chair of, and was considered in committee on 6/08/16.  The bill was then submitted to the Senate calendar with a substitute amendment as Order Number 512 and is currently awaiting a vote schedule.