CBA Joint Letter to SBA on Funds Availability Proposal

Dear Mr. Kelley:
The National Association of Government Guaranteed Lenders (NAGGL), The Financial Services Roundtable
(FSR) and the Consumer Bankers Association (CBA) (collectively “the Associations”) appreciate the
opportunity to comment on the U.S. Small Business Administration's (SBA) proposed rule that would amend
13 CFR 120 to eliminate Section 120.102, Funds not available from alternative sources, including personal
resources of principals. Comments, if any, on the portion of the proposed rule related to the definition of
affiliation for purposes of determining 7(a) and 504 program eligibility will be provided in a separate letter.
The Associations strongly support the intention of the proposed regulatory changes – to enhance job
creation by increasing eligibility for loans made under the 7(a) and 504 program authorities. The
organizations also strongly support maintaining the same standard regarding personal resources for both the
7(a) and the 504 programs. We believe that policy consistency on this issue is critically important since
small businesses frequently access loans from both programs. It would be inappropriate for an applicant to
be eligible for one program and not eligible for the other.
The Associations commend SBA for its attempt to once again address the difficult issues of what constitutes
the availability of credit elsewhere and how to establish standards that can be easily understood and
consistently applied by lenders and Certified Development Companies (CDCs). As well-documented in the
preamble to the proposed rule, this is an area where both statutory mandate and SBA implementation have
evolved over time as both Congress and SBA have struggled to best define the credit elsewhere concept and
to assure, insofar as possible, clear guidelines and consistent application of the credit elsewhere test.
NAGGL recently conducted a brief survey of its membership regarding the proposed change. It should be
noted that most, if not all, members of CBA and bank members of FSR are also NAGGL members. The
survey respondents overwhelmingly supported eliminating the personal resources test. Some of the
respondents commented:

“The rule is cumbersome to apply and is outdated. Business credit should be based upon business
needs together with repayment ability, not the personal resources of ownership. Personal assets
are part of the value of personal guarantees and provide a reasonable source of secondary or
tertiary repayment.”
“We believe that elimination of the proposed test will not only eliminate a somewhat redundant
eligibility criteria (we already have to justify credit elsewhere), but also open up SBA lending to
more eligible borrowers, thus creating greater opportunity.”
“I believe the Personal Resources Test is not a valid test, as it is measuring the "excess" of
personal liquidity at only a point in time. As we saw in this last recession, a small business (and by
extension its owner) can hardly ever have too much liquidity to survive a downturn.”

To read the full Comment Letter, download the PDF.