WASHINGTON—Questions related to the Small Business Administration’s plan to make SBA loans directly to borrowers as well as questions over fraud in the Economic Injury Disaster Loan program during the COVID pandemic were just some of the themes during a hearing by the House Small Business Committee during which SBA Administrator Isabella Casillas Guzman testified.
On the issue of EIDL fraud, several Republican leaders had questions for Guzman, noting the SBA has not addressed all of the SBA’s Inspector General’s recommendations to combat the issue. Those questions, in turn, sparked more questions around SBA’s experiences with direct lending programs like EIDL, with some lawmakers suggesting a new SBA direct lending program would likely result in negative outcomes, particularly for small businesses and their lenders, including credit unions.
Rep. Dan Meuser (R-PA), for example, stated that joint ventures and public-private partnerships with lenders have been much more successful than direct programs. Rep. Young Kim (R-CA), meanwhile, further suggested any such program could lead to unfair competition for small lenders trying to enter that space.
Credit Unions ‘Better Equipped’
Representative Scott Fitzgerald (R-WI) said during his remarks that credit unions and community banks are better equipped to serve small businesses through smaller-sized loans.
In response, the SBA’s Guzman defended the direct lending proposal, saying it would be aimed at filling in gaps in lending and that SBA would still work with its existing partners on current programs. Guzman said she believes the SBA will be able to stand up a new direct program in a timely manner in response to a question by House Small Business Committee Chairwoman Nydia Velasquez (D-NY).
Trades Respond
Separately, NAFCU, CUNA and several other financial institution trade groups sent a letter to Senate Majority Leader Chuck Schumer (D-NY) and Senate Minority Leader Mitch McConnell (R-KY) expressing major concerns regarding the granting the Small Business Administration direct lending authority..
“Like SBA, we agree that the smallest of the small businesses need increased access to capital. However, a government run program is not the solution to this problem,” the group wrote. The authors of the letter instead suggested that the SBA should be given necessary funds and resources to “bolster the successful 7(A) program.”
The group urged Schumer and McConnell to, “remove the direct lending program provision from BBB when the Senate considers this legislation later this month.”