Opinion ID: 6323764
Heading Depth: 3
Heading Rank: 1

Heading: Pre-CARES Act Statutory Context

Text: The SBA was enacted in 1958 to “aid, counsel, assist, and protect, insofar as is possible, the interests of small-business concerns.” Pub. L. No. 85-536, 72 Stat. 384 (1958) (codified as amended at 15 U.S.C. § 631(a), et seq.); see also 15 U.S.C. § 633(a) (establishing the SBA). The SBA’s primary mechanism for aiding small businesses is by financing private “Section 7(a) loans” under the Small Business Act. See 15 U.S.C. § 636(a). Although the SBA guarantees these loans, they are typically issued by private lenders rather than through direct disbursals from the SBA. Id.; United States v. Kimbell Foods, Inc., 440 U.S. 715, 719 n.3 (1979). By statute, Section 7(a) loans are subject to a “sound value” requirement—namely, that “[a]ll loans made under [Section 7(a)] shall be of such sound value or so secured as reasonably to assure repayment[.]” 15 U.S.C. § 636(a)(6). In addition to creating Section 7(a) loans, the Small Business Act authorizes the SBA Administrator to “make such rules and regulations as [s]he deems necessary” to implement the loan program. See 15 U.S.C. § 634(b)(6); id. § 634(b)(7) (vesting the SBA Administrator with the authority to create rules and “take any 6 and all actions . . . when [s]he determines such actions are necessary or desirable in making, servicing, . . . or otherwise dealing with or realizing on loans made under the provisions of [the Act]”). Accordingly, the SBA has promulgated several rules to ensure that Section 7(a) loans, consistent with the “sound value” mandate, are sufficiently creditworthy and assured of repayment. See, e.g., 13 C.F.R. § 120.150 (2022). In evaluating creditworthiness, the SBA considers various factors, including the “credit history of the applicant,” the “[s]trength of the business,” its “projected cash flow,” and the applicant’s “[a]bility to repay the loan with earnings from the business.“ Id. § 120.150(a)–(i). Additionally, as part of the creditworthiness inquiry, the SBA considers the bankruptcy status and history of each applicant, although a status or history of bankruptcy does not automatically render an applicant ineligible for a Section 7(a) loan. See SMALL BUS. ADMIN., SBA 7A BORROWER INFORMATION FORM 1919, https://www.sba.gov/sites/default/files/2021-12/Form%201919_10-21-2020-rev1_lt-508.pdf; see also Standard Operating Procedure, § 50 10 5(K), Small Bus. Admin., Lender and Development Company Loan Programs 178–80 (Apr. 1, 2019), https://www.sba.gov/sites/default/files/201902/SOP%2050%2010%205%28K%29%20FINAL%202.15.19%20SECURED%20copy 7 %20paste.pdf (outlining capital underwriting and capital analysis requirements for Section 7(a) loans).