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In a new op-ed for American Banker published last Friday, NAFCU President and CEO Dan Berger voices opposition for a proposal that would grant the Small Business Administration (SBA) direct lending authority to offer 7(a) loans of $150,000 or less to borrowers or “through partnerships with third parties.” 

In his publication, Berger argues against the proposal calling it a “flawed solution that puts taxpayers at risk and could lead to a decrease in lending to small businesses by the private sector.” 

In the latest version of the reconciliation bill, released by House leadership yesterday, the proposal continued to be included in the legislative text, amplifying growing concerns on the efficacy of the direct lending authority. 

Berger notes that although the proposal is well intentioned, it would inherently sever ties between small businesses and community financial institutions, including credit unions, who small businesses have come to rely on, especially during the pandemic. 

“It would direct borrowers to participate in yet another complicated and unfamiliar federal program,” writes Berger. “Not to mention that even though the SBA-backed Paycheck Protection Program (PPP) was utilized by many small businesses during the worst months of the pandemic, its success was greatly owed to the efforts of community financial institutions who stepped up during this time of need to help ensure the mom-and-pop Main Street small businesses that needed smaller loans were able to get them. “

While the SBA technically has the authority to make direct loans now, it has not exercised this right since the late 90s. When the SBA did use this power to distribute loans, “it has experienced several challenges including high rates of fraud and defaults,” notes Berger.

Of note, Berger also raises the question as to whether or not the SBA has the “infrastructure to successfully run such a program while ensuring sound underwriting and protecting both taxpayers and consumers.” Instead, the SBA should continue to work with experienced and better equipped community financial institutions such as credit unions to ensure small business lending demands are met. 

NAFCU remains engaged with the SBA and Congressional leaders to voice credit union concerns around the proposal. Read Berger’s full piece here.