House Small Business Committee presses SBA on rising defaults and underwriting changes

Chairman Williams of the House Committee on Small Business opened a Sept. hearing on the Small Business Administration's lending programs and sought answers about recent losses and policy changes that members said put taxpayer dollars at risk.

The committee heard testimony from Thomas Kimsey, associate administrator for the SBA's Office of Capital Access, who described steps the agency has taken since Jan. 20 to tighten underwriting and restore program safeguards. "Capital is a lifeblood of America's 36,000,000 small businesses," Kimsey said, adding that his office "restored pre‑Biden underwriting standards" and "reinstated lender fees to protect the 0 subsidy status of the program."

Why it matters: The 7(a) loan program is the SBA's flagship guarantee vehicle; committee members said changes under the prior administration led to higher early defaults and the program's first negative cash flow in over a decade, exposing taxpayers to long‑term risk.

Members pressed Kimsey on the scope and cause of losses. Ranking Member Velasquez said "loans are down, defaults are up, and we still do not have a full understanding" of access, systems, and how risk decisions affected operations. Kimsey responded that the SBA is managing a risky portfolio and pointed to a projected negative cash‑flow figure that committee staff cited during questioning.

Kimsey attributed recent reforms to a return to what he called "time‑tested" underwriting practices and said the agency had reinstated lender fees and added verification measures to reduce fraud. He told the committee the Office of Capital Access had suspended certain initiatives and reinstated the franchise directory to clarify eligibility for franchise lending.

Committee members pressed for specifics. Several representatives asked whether the SBA is monitoring lenders with elevated default rates, and Kimsey said the agency's risk division reviews lender portfolios and monitors partners with above‑average defaults. He also said the agency is expanding fraud checks and coordinating with other federal systems to verify identities and payments.

Clarifying details recorded to the committee record included a committee staff figure that early defaults had risen and a projected cohort negative cash flow of about $2,200,000,000 arising from lending decisions in recent years. Kimsey also cited a shorter figure of about $400,000,000 in costs passed to taxpayers in 2024 tied to prior policies; both figures were discussed during questioning but were not presented as audit findings during the hearing.

The hearing closed with members asking for follow‑up materials and for the SBA to provide more detailed lender‑by‑lender data and models supporting its claims about loan volume and loss projections. Without a formal vote, members said they would consider legislative approaches and oversight steps to codify or prevent future policy swings.

Looking ahead: Committee members requested additional written materials and indicated they will use the information in forthcoming oversight and legislative efforts.