Local banks know Main Street best, not the federal government
Last year, local banks swung into action and rushed to rescue small businesses reeling from the pandemic and imposed state and local shutdowns. These financial institutions have played a vital role in providing rapid assistance to businesses struggling to keep their doors open on Main Street.
Now, the Biden administration is rewarding the laudable success of local banks by usurping its role in the lending process and resurrecting the Small Business Administration (SBA) direct lending program. If left in place, the government’s expansive role in direct lending will be detrimental to small businesses, local financial institutions, and the U.S. taxpayer.
On November 19, 2021, House Democrats voted to advance the multibillion-dollar “Build Back Better” law. This disastrous bill includes a provision giving the SBA about $ 2 billion to create a direct lender loans option offering direct loans to the borrower of $ 150,000 or less. through the existing 7 (a) loan program, led by private lenders. However, as history has shown, oversight is dropped when the SBA engages in direct loans.
In 1998, the SBA was forced to close its direct loans 7 (a) after the agency found that the subsidy rates – the amount of aid the government, and therefore the taxpayer, provides to businesses – were 10 to 15 times the subsidy rate of its guarantee program loan. Despite this, the SBA continued to provide insufficient direct loans under its disaster lending program. In fact, this program has been used recently throughout the pandemic, and the results have been nothing short of disastrous.
In one October 2020 Report, the Office of the Inspector General (OIG) of the SBA warned of widespread fraud in the Economic Disaster Lending Program (EIDL), resulting in more than $ 78.1 billion in lending activity suspected fraudulent. More recently, the IG reported $ 4.5 billion in potential fraud in October 2021.
That’s not to say that the SBA doesn’t offer a variety of useful programs to support small businesses, including venture capital, technical assistance and training, and contracting opportunities. But the question remains: what do these successful programs have in common? These programs all use public-private partnerships that increase opportunities for small businesses and improve access to capital, in stark contrast to a direct lending option run only by the government.
The SBA was never designed to be a bank. It was designed for “To help, advise, assist and protect the interests of small businesses”, and to secure loans issued by banks and other financial institutions that have the experience and regulatory guarantees to detect and prevent fraudulent activity.
The Biden administration should reward private financial institutions for their tireless work in helping struggling small business owners in our country, without excluding them from the lending process. These are the same banks that help small business owners navigate the lending process; develop relationships that often transcend commercial interests; write a small business model; secure access to capital; and stand up for borrowers when the process doesn’t go their way.
The lender-borrower relationship is critical to the success of Main Street businesses. By removing financial institutions from the lending process, the SBA is signaling to these small business owners that their success is less than the growth of the federal government.
As former small business owners and members of the House Small Business Committee, it is our duty to stand up for Main Street USA. This is why our committee is fighting for legislation prohibit the administrator of the SBA from granting loans directly under the loan program 7 (a). This will ensure that small businesses continue to benefit from the advice, expertise and efficiency of local lenders.
Despite insurance from the SBA administrator that his agency will be able to create a new direct lending tool in a timely manner, we believe history has a way of repeating itself. If the SBA resuscitates direct lending, taxpayers, financial institutions, and small business owners will be at risk.
Blaine luetkemeyerWilliam (Blaine) Blaine Luetkemeyer Opponents of GOP elections raise money for corporations Local banks know Main Street best, not the federal government Banking regulator erupts in partisan split as Democrats become thugs MORE represents Missouri’s 3rd District and is a distinguished member of the House Small Business Committee. Scott Fitzgerald represents Wisconsin’s 5th District and is a member of the Small Business Committee.