ARLINGTON, Va.–Is historical data being cited by some to argue the Small Business Administration (SBA) should get back into the direct lending business actually overlooking some more recent data that would appear to refute that argument?
NAFCU thinks so.
The trade group is noting that proponents of a proposal that would grant the SBA authority to make small loans of up to $150,000 directly to borrowers claim it’s a lending niche being overlooked by traditional lenders such as credit unions and small banks.
But the data those proponents are citing isn’t up to date, according to Brad Thaler, VP-legislative affairs with NAFCU.
“Part of our concern is they are looking at data over the last couple of years where a lot of regular SBA loans not being made because everyone was doing (Paycheck Protection Program) loans, especially at the smaller level,” said Thaler. “But our other argument is that credit unions make smaller loans than other lenders. A lot of other credit unions signed up for (SBA loan-making authority) due to PPP. By going to direct lending you’re not even giving credit unions a chance to come in and try to meet this need. If the SBA chooses to go direct and not work with community lenders, there’s not even a chance to meet this need. Credit unions want to invest in SBA loans but if SBA does this directly it’s a big discouragement.”
Worries Over Fraud
Moreover, added Thaler, credit unions are concerned the lack of guardrails on direct loans by the SBA will drive many community lenders out of the small business loan space.
For a number of reasons—one of the biggest being fraud—the SBA exited the business of making loans directly to businesses in the late 1980s. Thaler said credit unions have the expertise to make the smaller loans that the government agency lacks.
“There is a reason why the SBA used to have this authority and went way from it over 20 years ago,” he said.
As CUToday.info reports separately, the fate of the SBA lending proposal remains very much up in the air as congressional Democrats and the administration attempt to rally support for their spending plans.
Thaler said he expects it won’t be until December before a final spending package is seen, and that comes with the caveat, “if we see a package.”