I have seen first-hand the kind of struggle that today’s small businesses face in order to survive in this economy, especially here in California. When looking for capital, many small businesses hear “no” and many banks run from small businesses as one of the riskiest investments in the market. That is why the survival of the Small Business Administration’s (SBA) 7(a) loan program is critical as a job-creating access to capital program. However, the program is about to reach its authorized lending cap annually set by Congress and as a result, will most likely shut down sometime in early August, possibly sooner. Before Congress goes back to the districts over August recess, I ask you to join me in encouraging them to keep this important lifeline open to Main Street America.
The 7(a) program annually supports over 45,000 small businesses and over 500,000 jobs with partnerships from approximately 1,200 active participating private-sector lenders who drive this bottom-up small business financing. Roughly 20% of all 7(a) lending go to California small businesses. In the past decade alone, over $27 billion in small business lending has gone to over 93,000 California small businesses through this program. Not only does 7(a) lending directly support American jobs, but it also operates at no cost to the U.S. taxpayer, and in fact, has consistently returned money to the Treasury. As a result, the 7(a) program has become one of those rare programs that actually stimulates the private-sector economy to make investments that actually benefit local downtown communities.
Lending in the 7(a) program has been increasing exponentially, in large part because of two main factors: the current climate surrounding the private sector’s financial institutions and the evolving status of small business needs. In this post-Dodd Frank and Basel III environment, banks are heavily regulated and avoid tying up their deposit base in long-term loans, creating a norm where the bulk of conventional loans are made for 3-year terms or less. This means that the majority of small businesses that typically need long-term, competitively priced loans can only find these terms through the 7(a) program, which offers loans up to a term of 25 years. Simultaneously, borrowers are just coming out of the shadows of the Recession, dramatically increasing the pool of 7(a) applicants.
Last year, Senate and House Small Business Committees, in conjunction with Senate and House FSGG Subcommittees on Appropriations, championed the passage of a $1 billion supplemental increase in FY14 7(a) lending authority in the final weeks of FY14 – successfully avoiding a shutdown of the program. This allowed private sector lenders to make hundreds of millions of dollars in loans to meet the needs of small businesses just in the last week of September FY14; loans that otherwise would not have been made.
Once again this year, FY15 is barreling toward the same circumstances as the 7(a) industry lends far above the expectations set by Congress more than a year ago. The program has an $18.75B lending cap for FY15, and industry, SBA, and OMB all concur that the program will most likely need $22.5B in lending authority. This is a good problem to have—it means that the private-sector is lending more and more to small businesses and stimulating local job creation. Congress needs to continue showing Main Street America that they are behind small businesses.
If Congress allows this program to shut down, the consequences will be most severely felt by the small businesses that rely on this source of access to capital. Thousands of small businesses will be told that the loan they believed would be available in September will not only be unavailable, but also that no one will be able to tell them when it will become available. If that small business was planning to hire new employees with 7(a) capital, it will have to tell those potential new hires that no jobs are available. If that small business has signed contracts with a construction crew to expand their business, they will need to find a way to halt expansion plans in order to avoid defaulting on the contract. In short, 7(a) program shutdown prevents job-providing small businesses from offering critical support to local communities.
We urge our policymakers to work as quickly as possible to increase the lending authority that capital for hard-working small business owners remains available. We need small businesses around California to contact their Member of Congress.
Of particular importance is contacting Leader Kevin McCarthy (R-CA-23), who represents California’s 23rd District in the Bakersfield area. More than $246 million in small business loans have been made in the 23rd District in the past two decades and that small business support should never be discouraged. Leader McCarthy’s office number is (202) 225-2915 and emails can be sent to kevin.mccarthy@mail.house.gov. Every voice helps!
It is important that we let California’s elected officials in Washington know how important the 7(a) program is to California small businesses.