SBA Loan Surge Signals Small Business Resilience, But Cap Constraints Loom

As SBA loan activity builds steam, small businesses are standing firm, report banks. Businesses are more upbeat, according to a recently study of business attitudes done by U.S. Bancorp and Umpqua Bank.

Approvals for 7(a) program loans, the flagship offering of the SBA, could hit that program’s $35 billion limit before the end of fiscal 2025, raising doubts about whether uncommitted funds are adequate. 

Tony Wilkinson, with the National Association of Government Guaranteed Lenders, said the approved loan level — $26.3 billion — is likely to reach the $35 billion cap by Sept. 30. SBA Administrator Kelly Loeffler can raise the cap by 15% if needed, but that may only bring momentary relief.

Other ideas are also being put forward to raise the overall cap or to issue loans of up to $10 million to manufacturers, which could cause the program to hit its cap more quickly.

Loan volumes have not slowed down. SBA loan approvals in 2024 topped $29 billion, and 2025 may see a record year for a non-stimulus year.

Lenders, including Community Bankshares Inc. and U.S. Bancorp, have noted that their SBA loan applications are on the rise. It shows borrowers and banks trust the program, especially for deals too risky for conventional loans but supported by SBA guarantees.

Lawmakers and bankers are watching intently. Small businesses employ about half of the U.S. private workforce, after all, so their success affects the big picture. Community banks do most of their business through small business loans.

And during uncertain times, when straight loans are harder to come by, SBA programs make up the difference.

Statistics from U.S. Bank and Umpqua Bank show that entrepreneurs are upbeat about the direction of the economy. Around 70% feel it’s a great time to start a company, and more than half plan on investing in equipment like generative AI. Such confidence could influence lawmakers to give the SBA more freedom.

But not everyone is keen on raising the cap. The Trump administration’s 2026 budget holds firm on the $35 billion ceiling. Others, like Gulf Coast Small Business Lending, feel high interest rates and inflation will simmer things down naturally. Others see recent shifts in SBA regulations that will put a damper on loan approvals.

But banks are overall bullish. Growing the loan cap size could attract deals that are outside SBA parameters now, including some property or business acquisitions.

“We’ve had to turn away business acquisition deals and commercial real estate deals that were in that $5 million to $10 million range, which shouldn’t be the case,” said Chris Hurn, president and CEO of Community Bankshares. “We’ve had a fair bit of inflation since then.”

Some subprime lenders are listening. When small businesses show they will stand strong during hard times, they look more creditworthy, even to lenders that typically focus on higher-risk borrowers.

If more restrictions are lifted or terms are relaxed by the SBA, subprime lenders can develop other methods to diversify and lower default risk.

With demand rising, the big question is whether and when the SBA will respond. Banks seem poised to keep lending, but rising demand could be constrained unless Congress raises the cap. But will the structure of the SBA hold up if there’s another potential downturn in the economy?