It is becoming increasingly likely that a supplemental appropriation will be needed to keep the Small Business Administration’s 7(a) loan-guarantee program operating through September.
At $11.3 billion, the program’s volume halfway through its fiscal year is about 9% ahead of the scorching pace set a year earlier.
Since Congress has yet to pass an appropriation for 2017, the 7(a) program’s funding authority was reset to last year’s total of $26.5 billion, an agency spokesman said.
Loan fees charged to lenders and some borrowers pay for 7(a) credit costs. No taxpayer funds are used, but Congress still sets an annual ceiling on the dollar amount of loans that can be guaranteed.
The program continues to gain momentum, which could cause headaches for lenders that participate in the popular program should volume bump up against the current legal limit. A number of participants believe that is all but assured.
“From what I can see, I think we’re going to … need a supplemental appropriation,” said Arne Monson, president of Holtmeyer & Monson, a Memphis, Tenn., SBA servicing firm with more than 430 bank clients. “Our activity is up across the board and across the country.”
“We’re kind of penalized by our own success,” said Richard Bradshaw, president of specialized lending at the $10.7 billion-asset United Community Banks in Blairsville, Ga. A supplemental appropriation “is something we’re looking at. … It’s going to be close.”
Though Congress has typically given bipartisan support for the SBA’s programs, legislators could use the need for supplemental appropriation to seek more oversight, industry observers said.
A request for more oversight “is reasonable,” Monson said. “I would expect that. Whenever you ask the government for money, there’s never a situation where there aren’t strings attached.”
The 7(a) program’s momentum will likely pick up over comings months, drawing even more attention to its authorization cap, industry observers said. July, August and September are typically the program’s busiest months.
“You’re seeing more and more lenders getting into the program and you’re seeing lenders announcing new departments,” said Bob Coleman, publisher of the Coleman Report and a recognized authority on small-business lending.
“From the supply side, lenders are absolutely embracing the program,” Coleman added. “They want to do more and more of this type of lending.”
Several banks aren’t waiting for the end of fiscal 2017 to accelerate 7(a) lending.
“We continue to be big proponents of SBA and continue to grow our balance sheet,” said Tom Pretty, who manages SBA lending at TD Bank Group. “We make thousands of SBA loans every year. I’m confident the number will grow in 2017.”
TD Bank recently said it plans to hire about 75 lenders to serve businesses with annual revenues under $1 million. Through Dec. 31, the company had made 228 loans under the 7(a) program, totaling $34.2 million.
"A lot of entrepreneurs are coming into the SBA market," Pretty said.
Gulf Coast SBA Lending, a unit of the $1.5 billion-asset Gulf Coast Bank & Trust in New Orleans, is on pace to double staffing and loan production this year, said Nimi Natan, the group’s president and CEO. He did not disclose any specific numbers.
“I continue to look for bankers across the country and teams in specific locations,” Natan said. “Two years ago I was able to get back-office professionals in Dallas, but … I now recruit credit people nationwide.”
United Community is also on pace for a big year. Fourth-quarter volume of $46.6 million puts the company on track to surpass the $138 million in 7(a) loans it made in fiscal 2016.
The SBA was forced to shut the 7(a) program down for a week in July 2015 when it hit a guarantee limit of $18.75 billion. Congress provided nearly $5 billion in a supplemental appropriation and increased the funding authority to $26.5 billion for fiscal 2016.
Lenders are optimistic Congress will step in again this year.
“They’re not going to double" the authority, "but I believe there’s appetite in the Congress … if they have to go to $28 billion or $30 billion,” Coleman said.
Monson agreed that the 7(a) program would likely need an increase in funding authority to $28 billion.
“SBA is a living, breathing success story,” Monson said.