7(a) Loan Agent Oversight Act (2023 Report)
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Summary
House Report 118–99 of the 118th Congress, submitted June 5, 2023 by the Committee on Small Business to accompany H.R. 1644, the 7(a) Loan Agent Oversight Act. The Committee reports the bill favorably without amendment; the bill would require the SBA's Office of Credit Risk Management to report annually to Congress on the performance, cost and risk of 7(a) loans generated through loan agent activity. The report describes three hearings held in 2023 and the May 23, 2023 markup at which the bill was ordered reported. It includes a Congressional Budget Office cost estimate of $48 million over the 2023–2028 period, including $20 million for an agent registration and tracking system. It closes with changes in existing law, adding report items and definitions of 7(a) agent and covered services to the Small Business Act.
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118TH CONGRESS REPORT
" HOUSE OF REPRESENTATIVES !
1st Session 118–99
7(A) LOAN AGENT OVERSIGHT ACT
JUNE 5, 2023.—Committed to the Committee of the Whole House on the State of
the Union and ordered to be printed
Mr. WILLIAMS of Texas, from the Committee on Small Business,
submitted the following
R E P O R T
[To accompany H.R. 1644]
[Including cost estimate of the Congressional Budget Office]
The Committee on Small Business, to whom was referred the bill
(H.R. 1644) to amend the Small Business Act to require a report
on 7(a) agents, and for other purposes, having considered the same,
reports favorably thereon without amendment and recommends
that the bill do pass.
CONTENTS
Page
I. Purpose and Bill Summary ........................................................................ 00
II. Need for Legislation .................................................................................... 00
III. Hearings ....................................................................................................... 00
IV. Committee Consideration ........................................................................... 00
V. Committee Votes ......................................................................................... 00
VI. Section-by-Section of H.R. 1644 ................................................................. 00
VII. Congressional Budget Office Cost Estimate ............................................. 00
VIII. New Budget Authority, Entitlement Authority, and Tax Expenditures 00
IX. Oversight Findings & Recommendations .................................................. 00
X. Performance Goals and Objectives ............................................................ 00
XI. Statement of Duplication of Federal Programs ........................................ 00
XII. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff
Benefits ..................................................................................................... 00
XIII. Federal Mandates Statement ..................................................................... 00
XIV. Federal Advisory Committee Statement ................................................... 00
XV. Applicability to Legislative Branch ........................................................... 00
XVI. Statement of Constitutional Authority ...................................................... 00
XVII. Changes in Existing Law, Made by the Bill, as Reported ....................... 00
I. PURPOSE AND BILL SUMMARY
The purpose of H.R. 1644, the ‘‘7(a) Loan Agent Oversight Act’’
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is to require the Small Business Administration’s (SBA) Office of
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2
Credit Risk Management (OCRM) to submit an annual report to
Congress regarding the performance of and risk associated with
7(a) loans generated through loan agent activity.
II. NEED FOR LEGISLATION
H.R. 1644 was introduced by Rep. Dan Meuser (R–PA) and Rep.
Dean Phillips (D–MN) on March 17, 2023 to improve SBA’s report-
ing on loan agent and broker activity in the 7(a) Loan Guaranty
Program (7(a) program). Authorized by section 7(a) of the Small
Business Act, the SBA’s 7(a) program is the agency’s flagship loan
program. Private sector lenders (mostly banks and credit unions
but also some non-depository lenders) originate commercial and
working capital loans of up to $5 million to small businesses who
cannot access credit elsewhere. SBA guarantees 50 to 90 percent of
each 7(a) loan made, depending on loan characteristics, assuring
the lender that if a borrower defaults on the loan, SBA will pur-
chase the loan and the lender will receive an agreed-upon portion
of the outstanding balance.
SBA also administers several subprograms within the 7(a) pro-
gram that offer streamlined and expedited loan procedures for dif-
ferent groups of borrowers, including the SBA Express, Export Ex-
press, and Community Advantage Pilot programs. Although these
subprograms have their own distinguishing eligibility require-
ments, terms, and benefits, they operate under the 7(a) program’s
authorization. For the majority of 7(a) loans, SBA relies on lenders
with delegated authority to process and service loans, and ensure
borrowers meet the program’s eligibility requirements. In FY2022,
SBA approved 47,678 7(a) loans for a total of more than $25.7 bil-
lion, with an average loan size of $539,033.1
SBA loan agents and brokers act as intermediaries between bor-
rowers and SBA lenders. Oversight of these loan agents and bro-
kers is lacking, which creates an environment ripe for fraud. This
risk has been consistently cited by SBA’s Office of the Inspector
General (OIG) as a top management and performance challenge
facing the agency, most recently in FY2023.2 In the report, the OIG
notes that SBA has taken steps to help mitigate fraud and oversee
high-risk lenders. However, OIG also notes that further improve-
ments are necessary to ensure program integrity and to mitigate
the risk of fraud and loss in the loan programs.
The Committee agrees with the OIG that though lenders bear
primary responsibility for monitoring their agents, only SBA is po-
sitioned to aggregate loan agent portfolios, evaluate their perform-
ance, and inform lenders and policymakers about concerning pro-
gram risks or trends. The SBA must conduct more rigorous over-
sight and tracking of third-party agents. Companion legislation
(H.R. 1651, the ‘‘Small Business 7(a) Loan Agent Transparency
Act’’) would require OCRM to compile loan agent data using a reg-
istration system that assigns each agent a unique identifier. H.R.
1644 requires a report to Congress regarding such data, including
1 U.S. SMALL BUS. ADMIN., FY 2024 CONG, BUDGET JUSTIFICATION FY2022 ANNUAL PERFORM-
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ANCE REPORT, 33 (Mar. 11, 2023).
2 U.S. SMALL BUS. ADMIN. OFFICE OF INSPECTOR GEN., TOP MANAGEMENT AND PERFORMANCE
CHALLENGES FACING THE SMALL BUSINESS ADMINISTRATION IN FISCAL YEAR 2023, 21–22 (Oct.
14, 2022).
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3
an analysis of the performance, cost, and risk associated with loan
agent activity in the 7(a) program.
III. HEARINGS
In the 118th Congress, the Committee held three hearings exam-
ining the issues covered in H.R. 1644. On April 19, 2023, the Com-
mittee on Small Business’ Subcommittee on Oversight Investiga-
tions and Regulations held a hearing on the OIG’s investigations
into SBA programs. The Inspector General testified to the Sub-
committee that one of the SBA’s top management and performance
challenges for FY2023 remains risk management and oversight of
loan activities and that improvement is necessary to ensure the in-
tegrity of the SBA’s loan programs.3
On May 10, 2023, during the Full Committee Hearing ‘‘Taking
on More Risk: Examining the SBA’s Changes to the 7(a) Lending
Program Part I’’ both Republican and Democrat members of the
Committee expressed concerns with two recent SBA Final Rules
that would add significant risk to the integrity of the 7(a) Program.
Specifically, how lifting the licensing moratorium on SBLCs and
eliminating long-standing loan underwriting criteria will create
ripe conditions for an increase in defaulted loans. Further, on May
17, 2023, during the Full Committee Hearing, ‘‘Taking on More
Risk: Examining the SBA’s Changes to the 7(a) Lending Program
Part II’’ one of the witnesses noted that broadening access to cap-
ital is a worthy goal but that the SBA’s proposals change too much
too soon in an uncontrolled environment.
IV. COMMITTEE CONSIDERATION
The Committee on Small Business met in open session, with a
quorum being present, on May 23, 2023 and ordered H.R. 1644 fa-
vorably reported to the House of Representatives. During the
markup no amendments were offered.
V. COMMITTEE VOTES
Clause 3(b) of rule XIII of the Rules of the House of Representa-
tives requires the Committee to list the recorded votes on the mo-
tion to report legislation and amendments thereto. The Committee
voted to favorably report H.R. 1644 to the House of Representatives
at 2:37 p.m.
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3 Office of Inspector General Reports to Congress on Investigations of SBA Programs: Hearing
Before H. Comm. on Small Business Subcomm. on Oversight Investigations and Regulations,
118th Cong., 4 (testimony of Hannibal ‘‘Mike’’ Ware, Inspector General, U.S. Small Bus.
Admin.).
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VI. SECTION-BY-SECTION OF H.R. 1644
Section 1. Short title
This Act may be cited as the ‘‘7(a) Loan Agent Oversight Act.’’
Section 2. Requirements for 7(a) agents
This section requires OCRM to submit to Congress an annual re-
port regarding the performance, cost, and risk associated with
loans generated through loan agent activity.
VII. CONGRESSIONAL BUDGET OFFICE COST ESTIMATE
Pursuant to 3(c)(3) of rule XIII of the Rules of the House of Rep-
resentatives, the Committee adopts as its as its own the cost esti-
mate prepared by the Director of the Congressional Budget Office
pursuant to section 402 of the Congressional Budget Act of 1974.
H.R. 1644 would require the Small Business Administration
(SBA) to report annually to the Congress on agents that help small
businesses to secure loans of up to $5 million that are guaranteed
by the SBA under the 7(a) loan program. Agents include attorneys,
consultants, and accountants that assist small businesses during
the 7(a) loan application process. The report would include the
number of agents assisting 7(a) loan applicants, the dollar amount
of fees paid to agents, and the risk created by agents.
The costs of the legislation, detailed in Table 1, fall within budg-
et function 370 (commerce and housing credit).
TABLE 1—ESTIMATED INCREASES IN SPENDING SUBJECT TO APPROPRIATION UNDER H.R. 1644
By fiscal year, millions of dollars—
2023–
2023 2024 2025 2026 2027 2028 2028
Estimated Authorization ................................ * 10 10 10 10 10 50
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Estimated Outlays ......................................... * 9 9 10 10 10 48
* = between zero and $500,000.
Insert offset folio 9 here HR99.003
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Using information from the SBA, CBO expects that the annual
report would cost about $1 million each year. However, the SBA
does not currently collect the information that it would need to
write the report specified in the legislation. Thus, CBO expects
that the SBA would need to establish and maintain a registration
system to track agents working on 7(a) loans in order to complete
a full and accurate report. On that basis, CBO estimates that im-
plementing H.R. 1644 would cost the agency $48 million over the
2023–2028 period, assuming appropriation of the estimated
amounts.
Those estimated amounts include $20 million to establish and
maintain a system to register and track agents working on 7(a)
loans, $23 million to hire contractors to administer the registration
program, and $5 million to report annually to the Congress.
On May 26, 2023, CBO transmitted a cost estimate for H.R.
1651, the Small Business 7(a) Loan Agent Transparency Act, as or-
dered reported by the House Committee on Small Business on May
23, 2023. That legislation would require the SBA to register such
agents but would not require an annual report to the Congress.
Unlike H.R. 1644, H.R. 1651 also would require the SBA to collect
fees from agents, which may be spent without further appropria-
tion. CBO’s estimated costs for registering agents and keeping that
information up to date are the same for both estimates.
The CBO staff contact for this estimate is David Hughes. The es-
timate was reviewed by Ann Futrell, Senior Adviser for Budget
Analysis.
PHILLIP L. SWAGEL,
Director, Congressional Budget Office.
VIII. NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX
EXPENDITURES
Pursuant to clause 3(c)(2) of rule XIII of the Rules of the House
of Representatives and section 308(a)(I) of the Congressional Budg-
et Act of 1974, the Committee provides the following opinion and
estimate with respect to new budget authority, entitlement author-
ity, and tax expenditures. The Committee does not believe that
there will be any additional costs attributable to this legislation.
H.R. 1644 does not direct new spending, but instead reallocates
funding independently authorized and appropriated.
IX. OVERSIGHT FINDINGS & RECOMMENDATIONS
In accordance with clause 3(c)(1) of rule XIII and clause 2(b)(1)
of rule X of the Rules of the House of Representatives, the over-
sight findings and recommendations of the Committee on Small
Business with respect to the subject matter contained in the H.R.
1644 are incorporated into the descriptive portions of this report.
X. PERFORMANCE GOALS AND OBJECTIVES
With respect to the requirements of clause 3(c)(4) of rule XIII of
the Rules of the House of Representatives, the performance goals
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and objectives of H.R. 1644 is to require an annual report from
OCRM to Congress on the performance, cost, and risk associated
with 7(a) loans generated through loan agent activity.
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XI. STATEMENT OF DUPLICATION OF FEDERAL PROGRAMS
Pursuant to clause 3(c)(5) of rule XIII of the Rules of the House
of Representatives, no provision of H.R. 1644 is known to be dupli-
cative of another Federal program, including any program that was
included in a report to Congress pursuant to section 21 of Public
Law 111–139 or the most recent Catalog of Federal Domestic As-
sistance.
XII. CONGRESSIONAL EARMARKS, LIMITED TAX BENEFITS, AND
LIMITED TARIFF BENEFITS
With respect to clause 9 of rule XXI of the Rules of the House
of Representatives, the Committee finds that the bill does not con-
tain any congressional earmarks, limited tax benefits, or limited
tariff benefits as defined in clause 9(e), 9(f), or 9(g) of rule XXI of
the Rules of the House of Representatives.
XIII. FEDERAL MANDATES STATEMENT
The Committee adopts as its own the estimate of Federal man-
dates prepared by the Director of the Congressional Budget Office
pursuant to section 423 of the Unfunded Mandates Reform Act.
XIV. FEDERAL ADVISORY COMMITTEE STATEMENT
No advisory committees within the meaning of section 5(b) of the
Federal Advisory Committee Act were created by this legislation.
XV. APPLICABILITY TO LEGISLATIVE BRANCH
The Committee finds that the legislation does not relate to the
terms and conditions of employment or access to public services or
accommodations within the meaning of section 102(b)(3) of the Con-
gressional Accountability Act.
XVI. STATEMENT OF CONSTITUTIONAL AUTHORITY
Pursuant to clause 7 of Rule XII of the Rules of the House, the
Committee finds that the authority for this legislation in Art. I, § 8,
cl.1 of the Constitution of the United States.
XVII. CHANGES IN EXISTING LAW, MADE BY THE BILL, AS REPORTED
CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
In compliance with clause 3(e) of rule XIII of the Rules of the
House of Representatives, changes in existing law made by the bill,
as reported, are shown as follows (new matter is printed in italics
and existing law in which no change is proposed is shown in
roman):
SMALL BUSINESS ACT
* * * * * * *
SEC. 47. OFFICE OF CREDIT RISK MANAGEMENT.
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(a) ESTABLISHMENT.—There is established within the Adminis-
tration the Office of Credit Risk Management (in this section re-
ferred to as the ‘‘Office’’).
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9
(b) DUTIES.—The Office shall be responsible for supervising—
(1) any lender making loans under section 7(a) (in this sec-
tion referred to as a ‘‘7(a) lender’’);
(2) any Lending Partner or Intermediary participant of the
Administration in a lending program of the Office of Capital
Access of the Administration; and
(3) any small business lending company or a non-Federally
regulated lender without regard to the requirements of section
23.
(c) DIRECTOR.—
(1) IN GENERAL.—The Office shall be headed by the Director
of the Office of Credit Risk Management (in this section re-
ferred to as the ‘‘Director’’), who shall be a career appointee in
the Senior Executive Service (as defined in section 3132 of title
5, United States Code).
(2) DUTIES.—The Director shall be responsible for oversight
of the lenders and participants described in subsection (b), in-
cluding by conducting periodic reviews of the compliance and
performance of such lenders and participants.
(d) SUPERVISION DUTIES FOR 7(A) LENDERS.—
(1) REVIEWS.—With respect to 7(a) lenders, an employee of
the Office shall—
(A) be present for and supervise any such review that is
conducted by a contractor of the Office on the premise of
the 7(a) lender; and
(B) supervise any such review that is not conducted on
the premise of the 7(a) lender.
(2) REVIEW REPORT TIMELINE.—
(A) IN GENERAL.—Notwithstanding any other require-
ments of the Office or the Administrator, the Adminis-
trator shall develop and implement a review report
timeline which shall—
(i) require the Administrator to—
(I) deliver a written report of the review to the
7(a) lender not later than 60 business days after
the date on which the review is concluded; or
(II) if the Administrator expects to submit the
report after the end of the 60-day period described
in clause (i), notify the 7(a) lender of the expected
date of submission of the report and the reason for
the delay; and
(ii) if a response by the 7(a) lender is requested in
a report submitted under subparagraph (A), require
the 7(a) lender to submit responses to the Adminis-
trator not later than 45 business days after the date
on which the 7(a) lender receives the report.
(B) EXTENSION.—The Administrator may extend the
time frame described in subparagraph (A)(i)(II) with re-
spect to a 7(a) lender as the Administrator determines nec-
essary.
(e) ENFORCEMENT AUTHORITY AGAINST 7(a) LENDERS.—
(1) INFORMAL ENFORCEMENT AUTHORITY.—The Director may
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take an informal enforcement action against a 7(a) lender if
the Director finds that the 7(a) lender has violated a statutory
or regulatory requirement under section 7(a) or any require-
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10
ment in a Standard Operating Procedures Manual or Policy
Notice related to a program or function of the Office of Capital
Access.
(2) FORMAL ENFORCEMENT AUTHORITY.—
(A) IN GENERAL.—With the approval of the Lender Over-
sight Committee established under section 48, the Director
may take a formal enforcement action against any 7(a)
lender if the Director finds that the 7(a) lender has vio-
lated—
(i) a statutory or regulatory requirement under sec-
tion 7(a), including a requirement relating to credit
elsewhere; or
(ii) any requirement described in a Standard Oper-
ating Procedures Manual or Policy Notice, related to a
program or function of the Office of Capital Access.
(B) ENFORCEMENT ACTIONS.—An enforcement action im-
posed on a 7(a) lender by the Director under subparagraph
(A) shall be based on the severity or frequency of the viola-
tion and may include assessing a civil monetary penalty
against the 7(a) lender in an amount that is not greater
than $250,000.
(3) APPEAL BY LENDER.—A 7(a) lender may appeal an en-
forcement action imposed by the Director described in this sub-
section to the Office of Hearings and Appeals established under
section 5(i) or to an appropriate district court of the United
States.
(f) REGULATIONS.—Not later than 1 year after the date of the en-
actment of this section, the Administrator shall issue regulations,
after opportunity for notice and comment, to carry out subsection
(e).
(g) SERVICING AND LIQUIDATION RESPONSIBILITIES.—During any
period during which a 7(a) lender is suspended or otherwise prohib-
ited from making loans under section 7(a), the 7(a) lender shall re-
main obligated to maintain all servicing and liquidation activities
delegated to the lender by the Administrator, unless otherwise
specified by the Director.
(h) PORTFOLIO RISK ANALYSIS OF 7(a) LOANS.—
(1) IN GENERAL.—The Director shall annually conduct a risk
analysis of the portfolio of the Administration with respect to
all loans guaranteed under section 7(a).
(2) REPORT TO CONGRESS.—On December 1, 2018, and every
December 1 thereafter, the Director shall submit to Congress
a report containing the results of each portfolio risk analysis
conducted under paragraph (1) during the fiscal year preceding
the submission of the report, which shall include—
(A) an analysis of the overall program risk of loans guar-
anteed under section 7(a);
(B) an analysis of the program risk, set forth separately
by industry concentration;
(C) without identifying individual 7(a) lenders by name,
a consolidated analysis of the risk created by the indi-
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vidual 7(a) lenders responsible for not less than 1 percent
of the gross loan approvals set forth separately for the
year covered by the report by—
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11
(i) the dollar value of the loans made by such 7(a)
lenders; and
(ii) the number of loans made by such 7(a) lenders;
(D) steps taken by the Administrator to mitigate the
risks identified in subparagraphs (A), (B), and (C);
(E) the number of 7(a) lenders, the number of loans
made, and the gross and net dollar amount of loans made;
(F) the number and dollar amount of total losses, the
number and dollar amount of total purchases, and the per-
centage and dollar amount of recoveries at the Administra-
tion;
(G) the number and type of enforcement actions rec-
ommended by the Director;
(H) the number and type of enforcement actions ap-
proved by the Lender Oversight Committee established
under section 48;
(I) the number and type of enforcement actions dis-
approved by the Lender Oversight Committee; and
(J) the number and dollar amount of civil monetary pen-
alties assessed.
(i) BUDGET SUBMISSION AND JUSTIFICATION.—The Director shall
annually provide, in writing, a fiscal year budget submission for
the Office and a justification for such submission to the Adminis-
trator. Such submission and justification shall—
(1) include salaries and expenses of the Office and the charge
for the lender oversight fees;
(2) be submitted at or about the time of the budget submis-
sion by the President under section 1105(a) of title 31; and
(3) be maintained in an indexed form and made available for
public review for a period of not less than 5 years beginning
on the date of submission and justification.
(j) ANNUAL REPORT.—
(1) IN GENERAL.—The Director shall submit to Congress, in
addition to the report required under subsection (h)(2), an an-
nual report including, for the calendar year covered by the re-
port—
(A) the number of 7(a) agents assisting applicants for
loans under section 7(a), disaggregated by 7(a) agents who
are attorneys, accountants, consultants, packagers, and
lender service providers (as defined by section 103.1 of title
13, Code of Federal Regulations);
(B) the number of fraudulent loans made for which an
applicant used services of a 7(a) agent;
(C) the purchase rate by the Administrator of loans for
which an applicant used services of a 7(a) agent;
(D) the number and aggregate dollar value of referral
fees paid to 7(a) agents, disaggregated by whether the ap-
plicant or 7(a) lender paid such fees;
(E) without identifying individual 7(a) agents by name,
a consolidated analysis of the risk created by the individual
7(a) agents responsible for not less than 1 percent of—
(i) the dollar value of loans made with the assistance
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of 7(a) agents; and
(ii) the number of loans made with the assistance of
7(a) agents;
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12
(F) an analysis of interest rates on loans for which an ap-
plicant or 7(a) lender used services of an agent; and
(G) a description of how the Administrator communicates
with 7(a) agents.
(2) DEFINITIONS.—In this subsection:
(A) 7(A) AGENT.—The term ‘‘7(a) agent’’ means a person
who provides covered services on behalf of a lender or ap-
plicant.
(B) COVERED SERVICES.—The term ‘‘covered services’’
means—
(i) assistance with completing an application for a
loan under section 7(a) (including preparing a business
plan, cash flow projections, financial statements, and
related documents); or
(ii) consulting, broker, or referral services with re-
spect to a loan under section 7(a).
* * * * * * *
Æ
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