Hill: SBA must end direct lending efforts

U.S. Rep. French Hill (R-AR) recently raised “serious concerns” about Small Business Administration (SBA) Administrator Isabel Guzman’s support for the SBA being a direct lender of 7(a) loans, the agency’s largest traditional lending program in which it partners with financial institutions to guarantee small business loans.

“The SBA should focus on improving its existing programs and incentivizing financial institutions to participate as lenders instead of expanding its own footprint,” wrote Rep. Hill and U.S. Rep. Blaine Luetkemeyer (R-MO) in a Nov. 17 letter sent to Guzman, urging the SBA to stop its direct lending efforts so that private-sector lenders can do their job.

“Small businesses that participate in the program benefit from the efficiencies, expertise and prudent underwriting of private-sector lenders,” the lawmakers wrote. “Having the federal government operate as a direct lender through the SBA would crowd out the private market and compete with community banks and other financial institutions that already work in public-private partnerships.”

Rep. Hill and his colleague pointed out that allowing the SBA to operate as a direct lender would invite more fraud and abuse, and ignores why repeated attempts at direct government lending have failed, according to their letter. “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,” they wrote. 

The lawmakers noted that the SBA has shown an inability to effectively operate a direct lending program over its lifetime and has failed to impose effective guardrails for such programs. They also wrote that they have urged their Democratic colleagues to remove Section 100502 from the Budget Reconciliation legislation that would provide the SBA with $1.96 billion in funding to originate and disburse direct 7(a) loans, according to their letter. 

“Likewise, given the lack of research and prudent foresight within this proposal, we request that you oppose this measure as well,” they wrote. “Additionally, no later than two weeks from the date of this letter, we ask that you provide us with the subsidy rates of the last time the agency provided direct loans through the 7(a) Loan Program.”