WASHINGTON — The U.S. Small Business Administration (SBA) said it is eliminating a “package of Biden-era policies which dramatically reduced underwriting standards within the 7(a) loan program, sacrificing its financial integrity and driving up taxpayer liability.”
Instead, the SBA said it is “restoring robust rules to end the era of reckless lending – preserving access to capital for America’s small business owners and safeguarding taxpayer dollars.”
In its statement, the SBA said the 7(a) loan program, by statute, it is required to operate at “zero-subsidy,” or zero cost – and historically pays for itself through lender fees, which cover the costs of any borrower defaults.
‘Massive Rise in Defaults’
“Despite this mandate, the Biden Administration eliminated lender fees. It simultaneously adopted an underwriting standard known as ‘Do What You Do,’ which erased longstanding lending criteria within the 7(a) loan program and enabled lenders to approve underqualified borrowers for government-guaranteed loans,” the SBA said. “Predictably, the program saw a massive rise in defaults and delinquencies – which the agency was unable to cover due to decreased fee income. By 2024, the 7(a) loan program had a negative cash flow of about $397 million – the first instance of negative cashflow in 13 years.”
The SBA said it has taken “aggressive action to stop the bleeding and restore lender fees within the 7(a) loan program.”
No More ‘Do What You Do’
The agency further stated that its new SOP 50.10.8 will reject the “Do What You Do” underwriting rules and revert lending criteria to the heightened pre-Biden standards.
“Additionally, the new rule will reinstate and streamline the Franchise Directory to help lenders determine whether certain businesses are eligible to receive an SBA loan,” the SBA said.
