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House Small Business Committee Republicans last week sent a letter to Speaker Nancy Pelosi, D-Calif., and House Minority Leader Kevin McCarthy, R-Calif., outlining concerns regarding a proposal included in the Build Back Better Act granting the Small Business Administration (SBA) direct-lending abilities. Under the provisions, the SBA could generate and distribute 7(a) loans of $150,000 or less, directly to borrowers or “through partnerships with third parties.”

The Republicans on the Committee, led by Ranking Member Blaine Luetkemeyer, R-Mo., expressed their opposition to the proposal urging House leadership to “exercise extreme caution with any proposals that rely solely on the federal government to underwrite and disburse small business assistance.”

Luetkemeyer and the other authors of the letter also noted that “the SBA’s most successful and efficient lending programs are assisted by the participation of private sectors,” underscoring the proven success of the public-private partnership between private lenders and the SBA from the Paycheck Protection Program (PPP).

Of note, during a House Small Businesses hearing Wednesday on entrepreneurial programs, Reps., Young Kim, R-Calif., and Scott Fitzgerald, R-Wisc., both raised concerns with this proposal to SBA Associate Administrator Mark Madrid.

When Kim asked about the direct lending program, Madrid responded that the intent behind the proposal was to ensure no one was let behind in low-income areas and that capital was available to underserved communities. Kim suggested alternative programs like such as the COVID EIDL program as apposed to granting the SBA direct lending authority. 

NAFCU continues to voice its concerns against the proposal, noting specifically that the provision would not require the SBA to work with lenders as they do with other 7(a) loan products, and would inherently allow them to make these new loans on their own. 

Last month, NAFCU Vice President of Legislative Affairs Brad Thaler sent a letter to both the House and Senate Small Business Committees in continuation of the association’s advocacy efforts against the direct lending proposal. “Even though the SBA has authority to make direct loans now, they have not exercised this authority, with the exception of disaster loans and loans to Microloan program intermediaries, since 1998 due to the challenges associated with them, including a history of higher rates of fraud and defaults,” wrote Thaler. 

“NAFCU recognizes the need for smaller loans for small businesses, and that is why we have supported legislation such as H.R. 5189, the Member Business Loan Expansion Act,” emphasized Thaler. “Allowing lenders that have relationships with small businesses, such as credit unions, to do more to help is a better approach to addressing this need.”

The association remains steadfast to ensure this provision is excluded from the budget reconciliation proposal. NAFCU will continue to engage Congress to advocate against provisions that would further complicate the direct lending process