U.S. Reps. French Hill (R-AR) and Blaine Luetkemeyer (R-MO) urged the Small Business Administration to stop its direct lending efforts in a letter Wednesday.
Hill, the ranking member of the Subcommittee on Housing, Community Development and Insurance, and Luetkemeyer, the ranking member of the House Small Business Committee, wrote that the SBA’s administration of loans damaged private-sector lenders.
“Small businesses that participate in the program benefit from the efficiencies, expertise, and prudent underwriting of private-sector lenders,” the congressmen wrote. “Having the federal government operate as a direct lender through the SBA would crowd out the private market and compete with community banks and other financial institutions that already work in public-private partnerships. The SBA should focus on improving its existing programs and incentivizing financial institutions to participate as lenders instead of expanding its own footprint.”
Additionally, the representatives said, the SBA could not adequately police its loan programs, which were ripe for fraud and abuse. Citing three SBA Office of Inspector General’s reports that found the potential for more than $80 billion in fraud in the Economic Injury Disaster and Loan program, the Congressmen said the SBA should leave the lending to the private sector.
“Allowing the SBA to operate as a direct lender would invite even more fraud and abuse, ignoring why repeated attempts at direct government lending have failed,” the Congressmen wrote. “Private sector lenders that must adhere to federal financial regulations far exceed oversight controls to protect and safeguard American taxpayer dollars as compared to a federal agency.”
The Congressmen asked that $1.96 billion in funding for the SBA to disburse direct loans be removed from the Budget Reconciliation legislation. Additionally, the Congressmen requested that the SBA provide them with the subsidy rates for the last time the Agency provided direct loans within two weeks.