The Numbers Don’t Lie—And They’re Ugly
Let me hit you with some numbers that’ll make your head spin. $335 million. That’s how much documented fraud we saw in the SBA’s 7(a) program in 2023 alone, and it’s all tied to loan agents.
I’ve been in this business for 26 years, and I’ll tell you what—I’ve seen some stuff. But when 15% of all 7(a) loans involve agents, and those agent-referred loans are defaulting at rates 28% higher than the program average? That’s not a coincidence. That’s a system that’s been gamed, and it’s been gamed hard.
Here’s the thing that really gets me: this isn’t just some abstract number on a government report. That’s $335 million that should have gone to legitimate small businesses—the mom-and-pop shops, the startups with real potential, the entrepreneurs who actually need the capital to grow. Instead, it lined the pockets of bad actors who figured out how to work the system.
Finally, Someone’s Doing Something About It
The 7(a) Loan Agent Oversight Act—H.R. 1804 for those keeping track—just passed the House with a 405-3 vote. When’s the last time you saw Congress agree on anything with numbers like that?
Representatives Meuser and McIver didn’t try to reinvent the wheel here. They looked at the problem and said, “You know what? We need transparency.” And they’re absolutely right.
What This Bill Actually Does (And Why It Matters)
Real Reporting Requirements That Make Sense
The SBA’s Office of Credit Risk Management is going to start producing annual reports that actually tell us what’s happening out there. We’re talking about:
- How many loan agents are operating in the system
- What types of arrangements they have
- Which ones are tied to fraudulent loans
- Who’s paying referral fees and how much
This isn’t rocket science, people. It’s basic business intelligence that should have been happening all along.
Follow the Money
Here’s where it gets interesting. The bill requires detailed tracking of referral fees—who’s paying them, how much, and to whom.
I can’t tell you how many times I’ve seen deals where the fee structure was so convoluted, nobody could figure out who was getting paid what. That’s not transparency. That’s a shell game.
When you start tracking interest rates on agent-facilitated loans versus direct loans, you’re going to see some patterns emerge. And I guarantee you, some of those patterns aren’t going to look good for certain players in this market.
Risk-Based Oversight That Actually Works
The bill focuses on agents handling 1% or more of total loan volume. That makes sense. If you’re moving that much paper, you should be under a microscope.
This isn’t about going after the small players who are doing honest work. It’s about identifying the big operators who might be cutting corners or worse.
Why This Matters for Everyone in the Game
For the SBA
Look, the SBA has been playing defense on this fraud issue for too long. This gives them the tools to get ahead of problems instead of just reacting after the damage is done.
When you can identify patterns in real-time, you can shut down bad actors before they steal another $335 million from legitimate borrowers.
For Legitimate Agents and Lenders
If you’re doing honest work, this should be music to your ears. The more we can weed out the bad actors, the better it is for everyone who’s playing by the rules.
I’ve seen too many good brokers get painted with the same brush as the fraudsters. This kind of oversight helps separate the wheat from the chaff.
For Small Business Owners
This is really about you. Every dollar that goes to fraud is a dollar that doesn’t go to a legitimate business that needs it.
The SBA programs exist for one reason: job creation and job retention. When fraudsters game the system, they’re stealing opportunities from real entrepreneurs.
What Happens Next
The bill’s sitting in the Senate Small Business Committee right now. Given the House vote, I’d say the prospects look pretty good.
The Congressional Budget Office says this won’t cost much because the SBA already collects most of this data through E-TRAN. They just need to organize it better and make it public.
That’s the beauty of this approach—it’s not creating new bureaucracy. It’s just making better use of information that already exists.
The Bigger Picture
Here’s what I love about this legislation: it’s not trying to kill the agent model. It’s trying to make it work better.
Loan agents serve a legitimate purpose in this market. They help connect borrowers with lenders, they can streamline the process, and they often work with businesses that might not otherwise know how to navigate the SBA system.
But like any system involving money, it attracts people who want to game it. The answer isn’t to shut it down—it’s to shine a light on it.
My Take
After 26 years in this business, I can tell you that transparency is the best disinfectant. When people know they’re being watched and measured, behavior changes.
The 7(a) Loan Agent Oversight Act isn’t perfect, but it’s a solid step in the right direction. It gives us the data we need to identify problems before they become crises.
More importantly, it sends a message: if you’re in this business to help small businesses succeed, great. If you’re here to game the system and steal from legitimate borrowers, we’re coming for you.
The small businesses that depend on SBA programs deserve a system that works with integrity. This legislation gets us closer to that goal.
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