SBA Lending Is No Longer Producing a Surplus

Suddenly, thanks to lower fees and increased defaults, the 7(a) loan program is losing hundreds of millions of dollars.

Good Morning!

Here are today’s highlights:

• Gene Marks thinks the government is out to get gig workers.

• With inflation rising again, don’t expect a rate cut any time soon.

• “No bank is going to touch us with a 10-foot pole,” says the owner of a business that relies on government contracts.

• The 25-percent tariffs on steel and aluminum are likely to hit car buyers, beer drinkers, home builders, oil drillers, and other manufacturers.

FINANCE

The SBA’s most important lending program is losing money: “The Small Business Administration’s flagship 7(a) loan program lost hundreds of millions of dollars in 2024 as agency fee reductions combined with an increase in loan defaults to result in negative cash flow. It's a marked change for a program that generally has operated with a large surplus. And it could mean higher loan fees in the future. Those findings, and others, come from a detailed risk assessment by the SBA of its 7(a) portfolio through June 30, 2024, that was obtained by The Playbook as part of a Freedom of Information Act request. It shows a portfolio stressed by rising defaults, more loan purchases and less money coming from fees. The report also shows a change, starting in late 2023, when it comes to the impact of loan-origination fees, which long have covered the cost of purchasing failed loans from lenders.”

• “The SBA's recent financial performance has made it a prime target for Republican lawmakers as well as the agency's administrator-nominee, former Sen. Kelly Loeffler. According to the documents provided to The Playbook, the 7(a) program saw positive cash flow of about $651 million in fiscal 2022. That sum fell to a positive $88.2 million in fiscal 2023.”

• “The SBA reduced loan fees even further in fiscal 2024. It eliminated upfront guarantee fees for loans longer than 12 months and less than $1 million. It cut in half those same fees for loans between $1 million and $2 million. Loans with less than 12 months of term also saw their fees reduced, and annual service fees were cut as well. The SBA ended up with negative cash flow of about $274 million in the first three quarters of its fiscal 2024, through June 30.”

• “The 7(a) program historically has operated with a large surplus — about $4 billion since 2013, and nearly $1 billion since 2021, according to the report analyzed by The Playbook. It was unclear from the report how long the 7(a) program could run at a loss.” READ MORE