Our Position

Small Business Lending

Position

  • ICBA promotes Small Business Administration loan programs and federal policies that foster a vibrant small business sector.

  • ICBA will continue to support policies that ensure community banks can continue to effectively serve small businesses in urban, suburban, and rural communities as they grapple with the ongoing pandemic. ICBA will advocate for any necessary legislative or administrative adjustments to COVID response programs.

  • ICBA opposes proposals to create an SBA 7(a) direct lending program.

  • ICBA opposes proposals to raise SBA 7(a) program 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 proposed 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.”)

  • 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.

COVID Response and Paycheck Protection Program. Paycheck Protection Program lending data continue to demonstrate that community banks are justifiably recognized as leaders of the financial response to the COVID-19 pandemic. Community banks made 60 percent of all PPP loans—including 72 percent of PPP loans to minority businesses.

As the COVID-19 crisis continues, ICBA will continue to support policies that ensure community banks can continue to effectively serve both American consumers and small businesses in urban, suburban, and rural communities as they grapple with these historic challenges. ICBA will continue to advocate to ensure any necessary legislative adjustments to the COVID response programs are made accordingly.

SBA Direct Lending. ICBA opposes proposals to create an SBA 7(a) direct lending program. Such a program could undermine the existing successful public-private partnership SBA loan programs.

SBA direct lending is a poor and costly alternative to private sector lending and would reach fewer borrowers. Today, there is a strong network of community banks, Community Development Financial Institutions, and other lenders already in place to meet demand for small business borrowers.

Further, the SBA has a poor track record in direct lending. The last time the agency engaged in direct lending in the 1990s, subsidy rates were found to be “10 to 15 times” higher than for its loan guarantee program, according to the Congressional Research Service. The recent Economic Injury Disaster Loan (EIDL) program, an SBA direct loan program, has been rife with fraud and poorly executed.

Bank and other private sector lender underwriting and expertise are what make the 7(a) program successful. They have direct ties to their communities, knowledge of local economic conditions and expertise honed over generations that cannot be duplicated by the SBA. These lenders should not be displaced.

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.”)

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 Contact: Steve Keen, Mark Scanlan, and James Kendrick

Staff Contacts

Stephen Keen

Vice President, Congressional Relations

Washington, DC

Email

Mark K. Scanlan

Senior Vice President, Agriculture and Rural Policy

Washington, DC

Email

James Kendrick

First Vice President, Accounting and Capital Policy

Washington, DC

Email