I recently had the pleasure of attending the 2025 Spring NAGGL Conference held May 13-15 in Salt Lake City! Both NAGGL and SBA leaders were optimistic that the SBA 7(a) program will continue forward, but it will require the ability to reverse the current trends that estimate future SBA loan losses and accumulated deficit cash flow up to $2 billion. The program could easily be on radar to be eliminated if it becomes a taxpayer burden. Re-instatement of guaranty fees was the first step to covering future losses as the waivers resulted in $460 million of lost fee income.
Lender behavior also needs to change. Defaults for loans originated during 2020-2024 are much higher than historical averages which is a key indicator that the lack of program guardrails, which began in May 2023, resulted in lower underwriting standards. In addition to bringing back many of the standards in 50 10 6, SBA is increasing the SBSS credit score threshold from 155 to 165 after trends reflect that the loss prediction in the 140-155 range is not good. They are also considering re-evaluating at some point to increase the threshold to 180. The message to lenders was clear and simple:
- Change underwriting standards that align with ‘do as you should do’
- Make good quality loans
- Manage risk properly
SBA’s goal is to increase loan limits and offer program enhancements. One example of this that lenders will definitely welcome are the anticipated changes to the much-underutilized Cap Line Program:
- 75% guaranty up to $5,000,000.
- No monthly monitoring requirements.
- No borrowing base certificates.
- No annual site visits.
- Interest only payments.
- Principal reductions can be reborrowed.
- Revolving up to 10 years, with ability to term out for 10 years.
- Annual credit review with expectation to term out if business is not healthy.
- 50% discounted collateral coverage.
- Minimum of 1:1 cashflow coverage.
SBA is also requiring PLP Lenders to use their delegated authority to help manage the workload after staff cuts. They have created a special inbox at 7aDelegatedLoanApps@sba.gov that will be managed by the most experienced SBA team members to assist with deal-specific questions from delegated Lenders.
SBA leaders reinforced that the lending community is appreciated and NAGGL leaders reinforced that changes are necessary. Overall, it was a great conference to attend with lots of new information shared!
