Financial Trades to Congress: Don’t Let SBA Make Direct Loans

Republicans and financial trade groups, including the National Association of Federally-Insured Credit Unions, are asking Congress to drop a Small Business Administration proposal to allow it to expand its direct lending programs.

The House Small Business Committee last week approved $4.465 billion to fund a direct loan program for the SBA.  The plan, which would not rely on banks and credit unions, was contained in the committee’s budget reconciliation legislation that allowed it to spend $25 billion over ten years to expand small business lending.

The direct lending plan was first proposed by the Biden Administration.

The proposal would “fill those gaps in our lending market, and ensure underrepresented entrepreneurs have the capital they need to launch and grow their businesses,” House Small Business Committee Chairwoman Nydia Valesquez, D-N.Y., said during committee consideration of the proposal.

But financial trade groups are not happy with that proposal.

“While we do not believe the SBA should be making loans directly, we stand ready to work with Chairwoman Velázquez and [Senate Small Business Committee Chairman Ben Cardin] to make it clear that the SBA should continue to partner with credit unions and other community financial institutions,” said NAFCU Director of Regulatory Affairs Ann Kossachev.

Rebeca Romero Rainey, president/CEO of the Independent Community Bankers of America was blunter.

“Direct lending is a poor and costly alternative to private sector lending and would reach fewer borrowers,” she wrote in a letter to House and Senate Small Business Committee leaders. “Today, there is a strong network of community banks, Community Development Financial Institutions, and other lenders already in place to meet demand for small business borrowers.”

In comments submitted to the House Budget Committee, House Small Business Committee Republicans questioned whether the SBA should be in the direct loan business and they questioned the wisdom of the overall small business proposal developed by committee Democrats.

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