WASHINGTON, D.C. — The U.S. Small Business Administration (SBA) has announced significant policy changes to the 7(a) loan program, reversing directives implemented under the Biden Administration. These measures seek to tighten underwriting standards, reinstate lender fees, and prevent taxpayer exposure following a period of increased defaults and financial instability in the program.
SBA Administrator Kelly Loeffler emphasized the urgency of the reforms, stating, “The last Administration inherited a thriving 7(a) loan program but left it in critical condition – dismantling every common-sense guardrail that kept it solvent and self-sustaining. From slashing lender fees to destroying underwriting standards, Biden’s reckless policies have triggered a surge in defaults which now threatens the viability of the program along with its risk to taxpayers.”
The 7(a) loan program is designed to provide government-backed loans for small businesses that face difficulty accessing traditional credit sources. Traditionally, the program has maintained a “zero-subsidy” status, meaning lender fees have historically covered borrower defaults without impacting taxpayers. However, Biden-era policies, including the removal of lender fees and the adoption of a lenient “Do What You Do” standard for loan approval, created what the SBA described as a financial imbalance. By 2024, the program experienced its first negative cash flow in over a decade, amounting to approximately $397 million.
To address these issues, the SBA has introduced the new SOP 50.10.8 rule, which restores the more stringent lending standards in place before the Biden Administration. The rule also reestablishes lender fees and streamlines the Franchise Directory, enabling lenders to more accurately determine borrower eligibility. These adjustments aim to stabilize the program and curb financial risks.
Looking ahead, the SBA’s reforms represent a pivotal effort to safeguard the financial integrity of the 7(a) loan program while preserving its role in supporting America’s small business community. Whether these measures succeed in securing the program’s future will depend on their implementation and the response from private lenders.
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