H.R. 6347 adjusts the Small Business Administration’s (SBA) 7(a) Loan Program’s commercial real estate appraisal threshold to match the level set by federal banking regulators.
As a way to bridge the lending gaps that exist in the marketplace for the nation's smallest firms, the SBA administers the 7(a) Loan Program, where creditworthy small businesses that cannot obtain traditional lending have the opportunity to apply for a government guaranteed loan. The program does not provide direct loans to participating small businesses; rather, SBA guarantees the repayment of loans made by participating financial lenders. The maximum loan a small business can acquire is $5 million and the guarantee percentage ranges from 75 to 85 percent based on the loan amount. The SBA charges lenders an upfront fee to run the loan program and cover any losses to protect the American taxpayer in accordance to the 1990 Federal Credit Reform Act (FCRA). In previous years, the program has relied on a subsidy from Congress to operate the program. However, because the fees have been sufficient, the program has been running on a zero subsidy cost to the American taxpayer for the last six fiscal years, and SBA requested a zero subsidy for FY 2019.
The threshold value that determines when a formal appraisal is required was set in 1994 at $250,000 by federal financial regulators, including the Board of Governors of the Federal Reserve (Federal Reserve), the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC). While similar, the SBA's 7(a) loan appraisal value is codified in statute at $250,000 per the Small Business Act. Therefore, any changes made by federal financial regulators pertaining to the commercial real estate appraisal threshold would not be matched by the SBA.
With concerns that the $250,000 threshold value is outdated, financial regulators updated their value to $500,000 in April of 2018. As described above, the SBA 7(a) value now conflicts with the federal banking regulators threshold value. H.R. 6347 would update SBA's 7(a) commercial real estate threshold value and modernize the calculation to keep pace with financial regulators.