The 7(a) lending program is back on track. Last month, President Obama signed into law a bill that would raise the SBA’s lending authorization ceiling to $23.5 billion for its flagship lending program. With the bill’s signing, the SBA resumed loan approvals and small businesses are again able to get loans backed by the federal government.
On July 23, 2015—just a few days before the president put pen to paper—the SBA maxed out its $18.75 billion lending limit for small business loans due to this year’s record levels of lending. While the Senate was quick to pass legislation approving an increase to the cap, that did not quell the fear and anxiety felt by small business groups over the possibility of congressional inaction and the detrimental impact it could have on small business owners and entrepreneurs.
The 7(a) lending program provides low-interest capital to small business owners. For small business entrepreneurs who struggle to gain the credit they need to grow or start their business, the 7(a) lending program is an important source of capital. In fact, for many small business owners, 7(a) loans are the only alternative to maxing out personal and business credit cards. And, from a lender’s perspective, 7(a) loans are a low-risk alternative to the high transactional costs and uncertainties of traditional lending. Lenders can use 7(a) loans to fund working capital and general business needs of small businesses, with the SBA providing a guarantee to help the lender if the borrower defaults.
While the 7(a) lending program is not the only SBA lending program, it is by far the most popular, which is why it was critical for Congress to act swiftly after the SBA hit the $18.75 billion cap. If Congress had not acted to raise that ceiling, SBA lending would have come to an abrupt halt until the beginning of the new government fiscal year.
Thankfully, Congress did act and, moving forward, the SBA has vowed to continue to work with both chambers to ensure that it continues to empower small businesses as they grow and create jobs.