Small Business Lending

Position

  • ICBA promotes the Small Business Administration loan programs and federal policies that foster a vibrant small business sector.
  • Additional Congressional oversight must not obstruct efficient community bank access to the various SBA lending programs.
  • The CFPB should exempt community banks from reporting data on small business loans under forthcoming regulations required by statute. Additionally, the CFPB should not use its authority to impose requirements beyond those mandated by statute. See separate resolution titled Loan Data Collection.
  • ICBA opposes efforts to impose consumer-like regulations on small business loans.
  • ICBA continues to enhance its small business sector relationships and coalition building.

Background

Community banks are prodigious small business lenders. Though they hold less than 20 percent of U.S. banking industry assets, they hold a disproportionate market share of small business loans – a majority of small business loans under $1 million – supporting a sector responsible for more job creation than any other. The viability of community banks is linked to the success of their small business customers. Community bank small business lending simply cannot be duplicated by a bank based outside the community. As noted in a recent study by scholars at Harvard’s Kennedy School of Government: “In certain lending markets, the technologies larger institutions can deploy have not yet proven effective substitutes for the skills, knowledge, and interpersonal competencies of many traditional banks.” Many community banks also use the SBA 7(a) lending program. Recently, Congress has examined ways to reform the 7(a) program to ensure proper oversight. ICBA supports additional 7(a) oversight, provided it is administered appropriately.

SBA Loan Program Funding. Numerous community banks participate in the Small Business Administration's guaranteed lending programs that provide needed capital to small businesses nationwide. The long-term viability of the SBA lending programs is important to the community banking sector and their small business customers. ICBA will continue to advocate for essential funding for SBA loan programs that will allow community banks to provide credit to small business in the most cost efficient manner. ICBA calls for a SBA 7(a) federal appropriation to help offset the steep fees on SBA lenders and borrowers.

Oversight. ICBA supports prudent oversight of the SBA and its various lending programs. Due to rapid loan growth over the last five years, Congress has examined the notion of additional oversight of the SBA’s flagship 7(a) lending program. ICBA is committed to working with Congress to ensure proper oversight of the 7(a) program, while allowing community banks continued access to the successful lending program.

Small Business Data Collection. Under Dodd-Frank Section 1071, CFPB is required to implement rules for the collection and reporting of data on financial institutions’ small business lending under the Equal Credit Opportunity Act. This requirement covers the collection of certain data in connection with credit applications made by women- or minority-owned businesses and small businesses, including the race, sex, and ethnicity of the principal owners of the business. This data collection will impose significant new burdens on community banks already absorbing numerous other regulatory requirements. See separate resolution titled “Loan Data Collection.”

Additional Small Business Lending Regulations. In addition to the Dodd Frank Act’s Section 1071, a push for more regulation of small business lending is slowly gaining traction. Various advocacy groups and public officials are advocating for consumer-like protections, such as an ability-to-repay test for small business loans. States like Illinois, have pushed for regulation of what is deemed “predatory” small business lending. Many of these efforts are aimed at online marketplace lenders that charge exorbitant interest rates. However, ICBA is opposing these efforts as they could result in unnecessary regulations for responsible small business lenders such as community banks.

Small Business Sector Relationships. The vitality of small business and the strength of the community banking industry are connected. ICBA will nurture and enhance working and advocacy relationships with small business industry alliances and coalitions to leverage the critical role community banks serve in the well-being of their small business customer base.

Staff Contacts: John Hand, Alan Keller, Joe Gormley, and James Kendrick