Senate hearing examines rising defaults, underwriting changes and Community Advantage role in SBA 7(a) program

Chair Joni Ernst, chair of the Senate Committee on Small Business and Entrepreneurship, opened a hearing on the Small Business Administration's flagship 7(a) loan program by warning that recent rule changes and fee cuts have increased taxpayer risk and borrower defaults.

The hearing focused on two linked concerns: whether loosened underwriting standards and the addition of nonbank lenders have raised default rates and losses in the 7(a) portfolio, and whether mission-driven lenders using the Community Advantage (CA) pilot continue to serve borrowers who cannot obtain traditional bank financing.

Why it matters: The 7(a) program is the SBA's principal vehicle for guaranteeing loans to small businesses. Witnesses and senators said program solvency matters for taxpayers, for small-business owners who rely on credit to start or expand ventures, and for community lenders that provide technical assistance in addition to capital.

Timothy Fitzgibbon, senior vice president at First National Bank (Iowa) and testifying for the Iowa Bankers Association and his bank, told the committee that “good underwriting protects the consumer along with the lender and in the case of the government backed SBA program, the taxpayer as well.” Fitzgibbon and other bank witnesses urged restoring stricter underwriting and some fees to reduce defaults and negative cash flow.

Raymond Lanza Weil,…