GOP lawmakers describe direct SBA lending as ‘expensive,’ ‘inefficient’
Unique: Republican MPs scolded democratic Leaders asked Wednesday to include a provision in their comprehensive reconciliation bill that would allocate billions to direct lending to the Small Business Administration, calling it an “expensive” way to get loans into the hands of small businesses.
In a letter to Senate Majority Leader Chuck Schumer and House Speaker Nancy Pelosi, 15 GOP senators led by Sen. Tim Scott of South Carolina raised the alarm over an authorization of nearly $4.5 billion over the next decade to issue SBAs directly. Democrats’ $3.5 trillion tax and spending bill for the popular 7(a) loan and $2.8 billion for the 504 loans.
Under this measure, small business owners will be able to go directly to the SBA to access capital instead of private lenders and banks.
“We believe this will be an inefficient, costly, and disproportionate position to hold both lenders and borrowers,” the Republican wrote in the letter, also addressed to Democratic small business chairs.
GOP lawmakers cited the vast discrepancy between the Paycheck Protection Program loan issuance, which was administered by banks and other private institutions, and the Economic Injury Disaster Loan, which was handled by the SBA.
For example, in fiscal year 2020, the SBA approved 42,402 7(a) loans of approximately $22.6 billion through 1,673 lending partners, in addition to approximately 12 million of approximately $800 billion through 5,467 different lenders. Apart from PPP loans. Republicans described the partnership between the SBA and private lenders as “massively successful” in getting money to small businesses struggling because of the pandemic.
But he pointed to a high rate of fraud in the SBA’s direct handling of EIDL loans: The SBA Inspector General recently disclosed $78.1 billion in potentially fraudulent EIDL activity; At the same time, the SBA had disbursed $290 billion in COVID-19 EIDL loans and grants, as of mid-September – meaning the fraud rate could be as high as 30%.
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In comparison, the potential fraud rate for PPP loans is estimated to be around 4.6%. The senators said PPP loans hinged on banks, credit unions, fintechs and other private sector lenders, while the EIDL program was entirely government-run.
“This misguidedly generous scheme collects taxes from small business owners, and then lends it back to them with interest,” Scott said in a statement to Granthshala Business. “It doesn’t make sense. The private sector is much more efficient at running these programs than big government. It’s just another part of the Democrats’ vast plan to make government control nearly every aspect of American life.” “
Democrats have argued that the measure is intended to help small business founders who were “left behind” by PPPs – a vital lifeline during the pandemic – because they lacked banking ties or their banks have lost large, Preference was given to more profitable loans.
But Republicans contested the reconciliation bill, saying instead the 7(a) program should expand the lender pool – giving borrowers more options – rather than “give the SBA the rule to run its own loan program”, which is “in contrast to the existing one”. This could make it more difficult for “lenders to participate and potential lenders to want to join the program.”
“As the United States emerges from the COVID-19 pandemic, the growth of small businesses and entrepreneurship should be a top priority,” the letter said. “Unfortunately, under the conciliation law currently under consideration, which, among other provisions, allows SBAs to establish and run a lending program that they regulate themselves, would harm job creators and harm the United States as a whole. will do harm.”
Granthshala News’ Andrew Murray contributed to this report