ICBA Policy Resolution: 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.
  • ICBA opposes recent proposed changes to SBA’s loan programs that would restrict borrowers that work with affiliated businesses, reintroduce a personal resources test, and limit lender fees.
  • Congress should repeal Section 1071 of the Dodd-Frank Act which requires new data reporting on small business loan applications. If repeal is not possible, the CFPB should exempt community banks 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 “CFPB Small Business Loan Data Collection Rule on page 41.)
  • 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 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.

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.

Affiliation Standards in Loan Programs

 ICBA opposes any regulatory changes to SBA lending programs that could diminish access to SBA loan programs by improperly identifying small businesses as affiliates of large corporations. ICBA believes SBA’s proposed affiliation principles will have many unintended consequences for small businesses across the nation, including agricultural enterprises.

Personal Resources Test

 ICBA cautions that the proposed reintroduction of the personal resources test could eliminate otherwise qualified potential borrowers from SBA lending programs. If these borrowers are disqualified from SBA programs, it will result in overall diminished loan quality and greater risk of default rates.

Fee Limitation

 ICBA believes that proposed caps on fees collected from SBA loan applicants will disadvantage community banks that rely on third-party loan packagers. Smaller loans will be especially impacted. These proposed caps could lead to a decrease in community banks using SBA loan programs for smaller loans. 

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. (See separate resolution titled “CFPB Small Business Loan Data Collection Rule” on page 41.)

Additional Small Business Lending Regulations

 Various advocacy groups and public officials advocate for consumer-like protections, such as an ability-to-repay test for small business loans. States such as 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 opposes these efforts as they could result in unnecessary regulations for responsible small business lenders such as community banks and increase the cost or limit access to loans for borrowers.

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: Steve Keen, Mark Scanlan, and James Kendrick

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