SBA has worked through backlog from last government shutdown

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As lawmakers near a deal to avert another government shutdown, senior officials at the Small Business Administration say the agency has addressed the backlog created by the previous impasse.

The agency was unable to process and approve applications during the 35-day shutdown. As of Feb. 2, the amount of 7(a) and 504 loans approved by the SBA in the 2019 fiscal year was 15% lower than a year earlier, at $8.8 billion.

But nearly a third of those loans have been approved since Dec. 14, when the SBA issued its last report before the shutdown.

"We’re completely back to normal inventory levels in loan approvals,” said William Manger, associate administrator for the SBA's Office of Capital Access.

"The agency has responded amazingly well," Manger said. The SBA devoted more resources to process applications to "get inventory levels back to normal."

In the first week of resumed operations, the SBA processed more than 2,500 applications for 7(a) loans, totaling more than $500 million, as well as $112 million in 504 applications, a spokesperson said.

Though lawmakers and industry observers pointed to estimates that the shutdown impacted up to 300 loans a day while the government was closed, the huge backlog of loan applications many feared never really came into play, Manger said.

“We actually bounced back better in 2019 than we did in 2013 after a shorter shutdown,” he said.

The 2013 shutdown lasted roughly two weeks.

Despite the seemingly strong recovery, the shutdown was by no means painless for banks and borrowers, some of whom testified about the hardships they endured during a recent hearing conducted by the House Small Business Committee.

The online marketplace Biz2Credit released its January Small Business Lending Index Tuesday, which found that loan approval rates by community banks fell slightly, to about 49%. The approval rate for alternative lenders increased from 56.6% to 57.3%.

Those numbers indicate that nonbanks were able to grab deals during the shutdown that might have otherwise gone to banks, said Biz2Credit CEO Rohit Arora.

“As SBA lending stalled … alternative lenders took advantage of the opportunity by lending money to business owners in need of quick capital,” Arora said.

While the approval process for SBA applications handled by Biz2Credit is running slightly slower than usual, Arora credited the agency with a strong recovery.

"I think they did well," Arora said. "They started processing applications pretty quickly. ... Not like past shutdowns, which were horrendous."

Banks have opted to fund more small-business loans conventionally in recent years, reflecting a stronger economy. As a result, SBA production has slowed from the blistering pace set between 2015 and 2018, when the agency approved more than $118 billion in 7(a) and 504 loans.

That said, SBA lending continues to play a major role in the business plans of many lenders, and lawmakers have paid close attention to the agency's shutdown response. Several legislators have sent letters to SBA Administrator Linda McMahon seeking updates.

On Monday, Rep. Nydia M. Velazquez, D-N.Y., chairwoman of the House Small Business Committee, and Sen. Ben Cardin, D-Md., ranking minority member on the Senate’s Small Business Committee, asked the Government Accountability Office to study the shutdown's impact on the SBA and small businesses.

McMahon is scheduled to testify Wednesday at a hearing of the Senate Small Business Committee.

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