By Rieva Lesonsky
The Small Business Administration (SBA) has long been pivotal in helping entrepreneurs and small business owners start and grow businesses. I have seen its accomplishments up close, having worked with them, on and off, since the end of the first Bush Administration.
The agency has undergone significant transformations in recent months as part of broader federal restructuring initiatives. Notably, it was announced that the SBA would reduce its workforce by 43%, equating to around 2,700 positions.
Additionally, the agency is set to assume new responsibilities, including overseeing certain aspects of federal student loan programs. These changes reflect a shift in the agency’s role and priorities. We don’t know if this shift will adversely affect the long-standing small business contracting goals (the percentage of federal contracts mandated to go to small businesses).
Small businesses are also worried about the unknowns, such as loan processing times, the decline rates, assisting those (not just businesses) impacted by natural disasters, and what this implies for the agency itself and the millions of small businesses it supports.
I talked to Ben Johnston, the COO of Kapitus, a small business lender and loan marketplace, for insight from the perspective of a small business lender. As the SBA likely reduces its lending activity, small business lenders are better positioned to serve small business owners as their need for capital becomes more acute.
What DOGE Means for the SBA
Rieva Lesonsky: How do you think these changes will impact the SBA?
Ben Johnston: While the recently announced cuts to the SBA are considerable, the SBA has seen significant fluctuations in overall staffing nearly every year since the beginning of the pandemic. As the SBA’s mandate grew to include management of the Paycheck Protection Program (PPP) in 2020 and 2021, its staff grew as well, from 4,432 in 2019 to a peak of 9,806 in 2021. As the PPP program ended and the loans issued were either forgiven, repaid, or charged off, SBA headcount dropped, reaching 6,279 in 2024. While a 43% reduction in 2024 staff is significant, it is only 19% below pre-pandemic staffing levels, indicating that disruption to core SBA 7(a) and 504 lending programs may not be as severe as the headline number suggests.
It is also important to note that the Biden Administration expanded the SBA’s mandate to include new programs such as the 2024 Green Lender Initiative, which promoted the inclusion of mission-driven climate lenders, and the 2021 Community Navigator Pilot Program designed to help “disadvantaged business owners” such as veterans, women, rural community businesses, and business owners of color, gain access to small business loans.
This helped broaden the reach of the SBA as the share of loans disbursed to African American business owners grew from 4.9% in 2021 to 7.2% in 2024, and the share of loans disbursed to Hispanics rose from 8.4% to 12.5%. The new administration has taken aim at these programs, citing them specifically in their press release announcing staffing cuts. It is safe to say that many aspects of these programs will be eliminated, disproportionately impacting disadvantaged businesses.
Lesonsky: How do you think the reorganization of the SBA will impact small businesses?
Johnston: During the Biden Administration, certain origination fees were reduced to make SBA loans more affordable, and certain underwriting guidelines were relaxed to expand access. Over the past several years, losses on the SBA portfolio have risen, and in 2024, the SBA, which is normally a self-funding agency, experienced negative cash flow for the first time in years. In its announcement of staff reductions in March 2025, the new leadership of the SBA explicitly identified changes made to the 7(a) program under the Biden Administration as responsible for rising delinquency rates and the resulting shortfall. As a result, we expect to see higher fees and restricted underwriting guidelines on the 7(a)-product going forward. This will ultimately restrict access to capital for many small businesses and make it harder for numerous entrepreneurs to obtain capital for growth.
Lesonsky: Do these cutbacks underscore how the SBA is underappreciated? Is it too late for the SBA to tout its accomplishments?
Johnston: Traditionally, the SBA has enjoyed bipartisan support as, according to SBA data, small businesses generate approximately 44% of U.S. GDP and employ 46% of the U.S. workforce.
However, since the pandemic, there has been some recognition that there was considerable fraud in the PPP program the SBA administered. While this is not necessarily the fault of the SBA as partner lending institutions were in charge of underwriting most of these loans, there is a sense by many in Washington that the SBA’s mandate may have stretched too far and should be reined in. Now, with DOGE pursuing aggressive cuts across most government agencies, the SBA is a natural target.
Lesonsky: The SBA collaborates with many entities, including banks, the Small Business Development Centers, Women’s Centers, SCORE, and more. Do you anticipate any repercussions for those organizations?
Johnston: The SBA has several partners who help it fulfill its mission, but the most numerous and arguably the most important are the 1,450 banks, credit unions, and non-bank lending institutions that underwrote and funded loans through the SBA 7(a) program in 2024. These banks receive a government guarantee from the SBA of between 50% and 90% on each loan they issue, depending on loan size and type, and are responsible for funding and servicing the loans they make on behalf of the SBA.
Given the tighter guarantee restrictions we expect going forward, these institutions will likely see origination volume drop in 2025 and beyond. In addition, partner institutions such as Small Business Development Centers, Women’s Centers, and SCORE are crucial for helping educate business owners about their financing options and helping them navigate the SBA application process. It is likely that new SBA restrictions will make their jobs harder and will mean that fewer of their constituents will be able to access financing in 2025.
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Looking Beyond the SBA
Lesonsky: What organizations do you anticipate stepping up to the plate to fill in the gaps the SBA may not be tending to?
Johnston: We expect traditional bank lenders to fill some of the void left as the SBA retrenches, but few will be willing to offer growing small businesses as favorable terms as the SBA, which often includes ten-year repayment terms and highly competitive interest rates. In addition, many non-bank small business lenders do not require collateral and use alternative credit data in their decisioning process, which will help fill the void. But once again, these lenders will offer shorter terms and higher rates than the SBA.
Lesonsky: What’s the future for women and minority-owned businesses given that DEI is “dead”? The SBA offered specific help to these typically underserved groups. Now what? How do we ensure these folks get the help they need?
Johnston: The current administration has made it quite clear that promoting diversity and offering any special assistance to traditionally underserved business communities will not be a priority for the SBA in the future. While that creates real hardships for these businesses, it also creates an opportunity for other lenders to better serve those communities and build lasting brand equity as a trusted provider of capital to these valuable businesses.
Lesonsky: As a lender, how do you think these layoffs will impact SBA loans?
Johnston: It is safe to assume that fewer SBA loans will be originated this year, given the announced staff reductions, expected credit tightening, and with the SBA taking on the additional responsibilities of managing approximately $100 billion in annual U.S. student loan originations. Note that the SBA in 2024 oversaw only $31 billion in total loan originations and did not perform the function of underwriting or servicing most of these loans. Merging the lending apparatus of the Department of Education with the existing infrastructure of the SBA is a huge undertaking and will inevitably impact the performance of both departments.
About the Author
Rieva Lesonsky creates content focusing on small business and entrepreneurship. Email Rieva at rieva@smallbusinesscurrents.com, follow her on Twitter @Rieva, and visit her website SmallBusinessCurrents.com to get the scoop on business trends and sign up for Rieva’s free Currents newsletter.
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