GOP Senators: SBA Shouldn’t Make Direct Loans; IG Alleges Waste

Fifteen Republican senators are urging Democratic leaders to drop a proposal to allow the Small Business Administration to make $4.5 billion in direct loans to businesses without using credit unions and banks.

“We believe this would be an inefficient, costly, and unequitable position to put both lenders and borrowers,” the senators, led by Sen. Tim Scott, R-S.C., wrote in a letter to Democratic colleagues on Wednesday.

The House Small Business Committee approved the proposal as part of its budget reconciliation legislation in an effort to expand small business lending. Credit union and banking trade groups vehemently oppose the plan, saying that SBA should expand the programs that rely on financial institutions to make the loans.

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 Valezquez, D-N.Y., said when the committee approved the plan, which was originally proposed by the Biden Administration.

The Republican senators said that during the pandemic, financial institutions have helped provide relief to businesses of all sizes. They said that the Paycheck Protection Program, which relied on private lenders was “massively successful.” They added that the Economic Injury Disaster Loan program suffered from rampant mismanagement. That program was entirely government run, the GOP senators noted.

“Giving the SBA the reins to run its own lending program will make it more difficult for existing lenders to continue to participate and potential lenders to even want to join the program,” they added. 

A new report issued by the SBA’s Inspector General this week may lend ammunition to the senators’ argument. The IG said that the EIDL program provided $4.5 billion more in grants to sole proprietors and independent contractors than they were entitled to receive.

“The funding could have been used to provide grants to more eligible small businesses, which was the intent of SBA’s policy of limiting grants to $1,000 per employee,” the IG said.

Related:

Inspector General Report: SBA Emergency EIDL Grants to Sole Proprietors and Independent Contractors

Letter from Republican Senators Opposing the SBA Making Direct Loans to Businesses

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