ICBA to Congress: SBA Direct Lending Would Undermine Successful Programs

March 16, 2022

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Washington, D.C. (March 16, 2022) — The Independent Community Bankers of America (ICBA) today told Congress that community banks are critical to the success of Small Business Administration lending programs, which should not be undermined by instituting direct SBA lending under its 7(a) program.

Robert J. Barnes—president and CEO of PriorityOne Bank in Magee, Miss.—told the House Small Business Committee’s Subcommittee on Oversight, Investigations, and Regulations that while community banks are instrumental in the Paycheck Protection, 7(a), and 504 programs, the SBA has a poor track record of direct lending.

“The SBA retreated from direct lending as an ill-conceived experiment,” said Barnes, chairman of ICBA’s Legislative Issues Committee, a member of the ICBA Federal Delegate Board, and a volunteer leader with the Mississippi Bankers Association. “Congress must not repeat this mistake. The recent Economic Injury Disaster Loan (EIDL) program, an SBA direct loan program, has been rife with fraud and poorly executed. Congress should heed this warning before creating a direct 7(a) program.”

In his testimony, Barnes said:

  • Community banks were the predominant Paycheck Protection Program lenders to local small businesses, accounting for nearly 60% of the program’s total loan amount, more than 75% of PPP loans to majority-minority communities, and more than 90% of PPP loans to communities with an average household income of less than $40,000 per year.
  • ICBA and community banks support the fiscal 2022 funding bill’s increase in the 504 program’s authorization cap, which avoids a harmful shutdown of a program funded through user fees at no cost to taxpayers.
  • Community banks experience low rates of fraud because they are on the ground in their communities and are relationship lenders.
  • Previous SBA direct-lending efforts have failed, with the agency stopping direct business lending within the 7(a) program because the subsidy rate—the cost to taxpayers—was “10 to 15 times higher” than the subsidy rate for its loan guaranty programs.
  • To avoid higher taxpayer subsidies, a higher incidence of fraud, and a rise in poorly underwritten loans that would cause the 7(a) program to prematurely exceed its lending cap, Congress should avoid repeating past direct-lending mistakes.

About ICBA
The Independent Community Bankers of America® creates and promotes an environment where community banks flourish. ICBA is dedicated exclusively to representing the interests of the community banking industry and its membership through effective advocacy, best-in-class education, and high-quality products and services.

With nearly 50,000 locations nationwide, community banks constitute roughly 99 percent of all banks, employ nearly 700,000 Americans and are the only physical banking presence in one in three U.S. counties. Holding nearly $5.9 trillion in assets, over $4.9 trillion in deposits, and more than $3.5 trillion in loans to consumers, small businesses and the agricultural community, community banks channel local deposits into the Main Streets and neighborhoods they serve, spurring job creation, fostering innovation and fueling their customers’ dreams in communities throughout America. For more information, visit ICBA’s website at www.icba.org.