Trade groups, GOP push back against SBA direct loan proposal

House Small Business Committee Ranking Member Blaine Luetkemeyer (R-Mo.) has introduced a bill to ban Small Business Administration direct lending, after the proposal was included in the Build Back Better legislative package. 

The plan would provide approximately $2 billion over 10 years to enable the SBA to offer loans of up to $150,000 to small businesses or through third-party partnerships. Build Back Better is set to be considered by the Senate later this month after securing House support. 

Luetkemeyer and French Hill (R-Ark.) recently penned a letter to SBA Administrator Isabella Casillas Guzman stating that direct lending would crowd out the private market and compete with community banks and other financial institutions that already work in public-private partnerships. They cited billions of dollars in fraud that took place through the SBA-administered Disaster Loan Program and Economic Injury Disaster Loans. 

“The SBA should focus on improving its existing programs and incentivizing financial institutions to participate as lenders instead of expanding its own footprint,” the lawmakers wrote. “The SBA has shown an inability to effectively operate a direct lending program over its lifetime and has failed to impose effective guardrails.” 

“Allowing the SBA to operate as a direct lender would invite even more fraud and abuse, ignoring why repeated attempts at direct government lending have failed,” they added. “Private sector lenders, that must adhere to federal financial regulations, far exceed oversight controls to protect and safeguard American taxpayer dollars as compared to a federal agency.” 

The ICBA, American Bankers Association and other trade groups called on Congress to reject the proposal earlier this month. “We have concerns that this new government operated program will undermine existing successful public-private partnership SBA loan programs while potentially limiting access to capital for those smallest of the small businesses due to increased complexity,” the groups wrote. Instead, the groups said the SBA “should be given the necessary funds and resources to bolster the successful 7(a) program.”