Increasing fees for loans made under the Small Business Administration’s 7(a) program would likely constrain lending, according to a credit union executive.
The SBA has proposed increasing fees on 7(a) loans greater than $500,000 for its fiscal year 2020 to ensure it can cover credit costs.
But the proposal was met with resistance from lawmakers and lenders during a House Small Business Committee hearing on Wednesday. Gail Jansen, vice president of business services and operations at Kinecta Federal Credit Union in Manhattan Beach, Calif., testified about the potential negative impact of the change.
“[I]t was troubling to see the request to modify its statutory fee structures and potentially increase its fees because of a refinement to its economic modeling,” Jansen said during her remarks. “The bottom line is that the fee increases, as proposed by the SBA in its budget submission, will impact both our small business members and the credit union.”
The SBA has said it either needs $99 million from Congress or to implement the fee hike to pay for credit costs. Tweaks to its economic modeling for loan purchases and “sensitivities … to long term macroeconomic assumption” led to the request,
The agency charges an upfront fee when a loan is completed and then an annual fee.
Under the proposal, loans between $500,000 to $700,000 made under the 7(a) program would be subject to an upfront fee totaling 3.5 percent of the loan amount. That would be a 50 basis point increase from the current fee level.
Loans greater than $1.5 million would have higher upfront and annual fees. Fees for loans less than $500,000 would remain the same.
Jansen argued that in expensive markets, a loan of $1.5 million "is not a lot when talking about commercial real estate."
“Increasing the cost of these loans to both the small business and the lending institution will likely make it more difficult to get an SBA loan for commercial real estate in higher-cost markets,” Jansen said, noting that the credit union had “a number of members who seek loans in this range.”
Jansen, who testified on behalf of the National Association of Federally-Insured Credit Unions, oversees a member business lending portfolio of nearly $1 billion at the $4.4 billion-asset Kinecta. That portfolio includes almost $35 million in SBA loans. The credit union’s SBA loans range from $50,000 to $5 million with an average of about $250,000.
Members of the credit union utilize SBA loans for anything from capital to business acquisitions and debt refinancing. The credit union averages approximately 20 SBA loans a year.
Jansen concluded her remarks by urging the SBA and Congress to not only protect, but also strengthen the SBA 7(a) program to avoid the potential fee increases.
“Small businesses are the driving force of our economy and the key to its success,” Jansen said. “The ability for them to borrow and have improved access to capital is vital for job creation.”
