Small Business Administration 7(a) Loan Guaranty Program

Robert Jay Dilger
Senior Specialist in American National Government

The Small Business Administration (SBA) administers several programs to support small businesses, including loan guaranty programs designed to encourage lenders to provide loans to small businesses "that might not otherwise obtain financing on reasonable terms and conditions." The SBA's 7(a) loan guaranty program is considered the agency's flagship loan guaranty program. It is named from section 7(a) of the Small Business Act of 1953 (P.L. 83-163, as amended), which authorized the SBA to provide business loans and loan guaranties to American small businesses. In FY2009, the program guaranteed 38,307 loans amounting to about $9.2 billion. 

Congressional interest in small business access to capital, in general, and the SBA's 7(a) program, in particular, has increased in recent years for three interrelated reasons. First, small businesses have reportedly found it more difficult than in the past to access capital from private lenders. Second, there is evidence to suggest that small business has led job formation during previous economic recoveries. Third, both the number of SBA 7(a) loans funded and the total amount of 7(a) loans guaranteed have declined. The combination of these three factors has led to increased concern in Congress that small businesses might be prevented from accessing sufficient capital to enable small business to assist in the economic recovery. 

A number of congressional proposals would amend the SBA's 7(a) program in an effort to increase the number, and amount, of 7(a) loans. These proposals include increasing the program's current limit on the amount of the loan guaranty; increasing the maximum percentage of the guaranty; expanding the eligible uses for the loan proceeds; and continuing the temporary subsidization of 7(a) program fees and an increase in the program's loan guaranty rate to 90%. These loan modifications and subsidies were initially enacted under P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA) and have been extended by law four times. These loan modifications and fee reductions expired on May 31, 2010. 

This report opens with a discussion of the rationale provided for the 7(a) program, the program's borrower and lender eligibility standards and program requirements, and program statistics, including loan volume, loss rates, use of the proceeds, borrower satisfaction and borrower demographics. 

It then examines previous congressional action taken to assist small businesses gain greater access to capital, including the temporary subsidization of 7(a) program fees and an increase in the program's loan guaranty rate to 90%. It also examines issues raised concerning the SBA's administration of the 7(a) program, including the oversight of 7(a) lenders and the program's lack of outcome-based performance measures. 

The report concludes with an assessment of the Obama Administration's proposals and pending legislation, which would authorize changes to the 7(a) program that are designed to enhance small business access to capital, including H.R. 3854, Small Business Financing and Investment Act of 2009; S. 2869, Small Business Job Creation and Access to Capital Act of 2009; and S.Amdt. 4594, an amendment in the nature of a substitute for H.R. 5297, the Small Business Jobs and Credit Act of 2010, which was introduced on August 5, 2010.


Date of Report: August 10, 2010
Number of Pages: 31
Order Number: R41146
Price: $29.95

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