The SBA loosened its rules, then had to buy back the loans

The SBA's 7(a) program doesn't lend money — it promises to.▸ A bank makes the loan; the SBA guarantees most of it; if the borrower defaults, the SBA pays the bank and eats the loss. For most of the program's history that promise cost taxpayers close to nothing, because the guaranty fees lenders paid covered the claims. In 2023 the agency changed the rules on who qualifies. By 2025 it had changed them back. The bill for the years in between hasn't stopped arriving.

Starting with a 2023 rule, the SBA let participating lenders underwrite 7(a) loans using their own internal standards — whatever criteria they already used for similarly sized commercial loans — rather than the agency's own credit tests.▸ SBA called this policy "Do What You Do." It also eliminated upfront lender fees and widened the pool of non-bank lenders allowed to originate SBA-guaranteed loans; the agency's inspector general notes it licensed three new non-bank lending companies in FY2024 alone. The SBA's own account of what happened next, filed with Congress in its FY2027 budget justification, is blunt: the changes "increased risk to the program and jeopardized the zero-subsidy status" the 7(a) guaranty is designed to run under — meaning fee income was supposed to cover expected losses without appropriated funds, and by 2024 it no longer reliably did.

On June 1, 2025, the SBA reversed course.▸ Information Notice 5000-866746 retired "Do What You Do," restored the agency's own underwriting criteria, reinstated the Franchise Directory, and brought back lender fees — all effective for any loan issued an SBA number on or after that date. Loans already on the books, made under the looser 2023–2024 rules, kept the rules they were born under.

FY2023's $12.2 billion includes the wind-down of loans across the portfolio's back book, not just new-rule originations, so it isn't a clean before-and-after comparison by itself.▸ But FY2024 and FY2025 are: the looser standards ran the entire 2024 fiscal year, and the reversal only took effect two-thirds of the way through 2025. Even so, the agency's own inspector general reports that FY2025's $5.2 billion in claim payments "exceeded the additional resources available to fund these claim payments, reflecting higher than expected defaults within the guaranteed loan portfolio." The fix arrived in June. The bill it was supposed to shrink grew anyway.

None of this slowed the program down — lenders disbursed more new 7(a) guaranties in FY2025 than in FY2024, and the SBA's total guaranteed-loan book grew with it, from $139.5 billion to $145.6 billion in a single year.

The two bars for each year aren't a same-year loss rate — a loan that defaults in FY2025 was usually written a year or more earlier — so this isn't proof the newest loans are worse.▸ It is proof that a growing book of guaranties ($145.6 billion outstanding, up from $139.5 billion) is sitting on top of a claims bill that just posted its second straight year above what the program budgeted to pay it, per the same OIG accounting. The people who benefited from the looser standards haven't finished defaulting; the taxpayers who guarantee the loans haven't finished paying for them.

Set against that is the number the SBA leads with: 7(a) and 504 loans, microloans, and surety bonds together supported an estimated 897,000 jobs in FY2025, up from 823,000 the year before, according to the same congressional budget filing.▸ That figure is the program's entire case for existing — cheap credit for businesses banks wouldn't otherwise fund, at a job-supported cost of a few hundred dollars per guaranteed dollar. It is also self-reported, modeled rather than audited loan-by-loan, and it was climbing in the same two years the default bill was climbing. Both numbers came out of the same looser lending. Only one of them is easy to cheer.

All fiscal-year figures are U.S. federal fiscal years (October–September) as reported by the SBA and its Office of Inspector General; FY2025 figures are the most recent full-year actuals available as of this writing.