WASHINGTON, D.C. — The U.S. Small Business Administration (SBA) has announced the reinstatement of lender fees for its 7(a) loan program, signaling a critical shift in policy aimed at restoring the financial integrity of the flagship lending initiative. This decision comes after Biden-era changes, which eliminated lender fees and introduced looser underwriting standards, resulted in significant financial strain on the program.
The SBA’s 7(a) loan program serves as a vital financial lifeline for small businesses that cannot secure credit elsewhere. It provides funding through private lending institutions and is mandated to operate at “zero-subsidy,” meaning it incurs no cost to taxpayers. The program’s funding depends heavily on the collection of lender fees, which had been waived under previous policies. According to SBA reports, the waiver of these fees, combined with relaxed lending criteria, drove the program into negative cash flow for the first time in 13 years.
“Since its inception, the SBA’s 7(a) loan program has launched millions of small businesses, driving economic growth and job creation. But the Biden Administration’s actions to undermine the financial integrity of the program now threaten to leave taxpayers on the hook,” said SBA Administrator Kelly Loeffler in a recent statement. “To safeguard taxpayer-backed capital and small business formation, the SBA is taking immediate action to reverse these policies, starting with the restoration of lender fees to protect the future of the program.”
Impact of Prior Policies
The prior administration’s elimination of lender fees and introduction of looser underwriting practices allowed non-regulated lenders to issue 7(a) loans, while also lowering the standards for loan approvals under initiatives like “Do What You Do.” These adjustments, while intended to increase access to capital, led to a marked increase in loan defaults and delinquency rates.
From 2022 to 2024, the SBA estimates that over $460 million in lender fees went uncollected, leaving the program unable to absorb the costs of defaulted loans. This shortfall contributed to a negative cash flow of $397 million in fiscal year 2024, threatening the program’s ability to maintain its zero-subsidy status.
According to the SBA, the financial strain caused by these changes will impact taxpayers, as the long-term cost of the Biden-era loans is projected to reach billions.
Path to Restoration
Lender fees have officially been reinstated for fiscal year 2025, with the SBA stating that further actions will be taken to ensure the stability of the 7(a) loan program. These measures aim to safeguard the program’s capacity to continue supporting small businesses and empowering sustainable economic growth.
The SBA emphasized that upcoming initiatives and reforms will focus on aligning the program with its founding principles, focusing on financial accountability while ensuring that small business owners have access to the capital they need to thrive.
The 7(a) loan program, one of the cornerstones of the SBA’s efforts to promote entrepreneurship, has fueled millions of small business ventures across the United States. Its return to a sustainable financial structure will be critical in maintaining its role as a reliable resource for small businesses nationwide. The SBA is expected to announce additional protective measures in the coming weeks.
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