WASHINGTON (NewsNation) President Joe Biden wants to expand the power of the Small Business Administration to not just help guarantee loans to small businesses but to directly lend the money. Nearly a dozen Republican senators want to make sure that doesn’t happen.
“Fraud and inefficiency characterize the Small Business Administration’s history in direct lending,” said Louisiana Senator John Kennedy this week.
“The government shouldn’t crowd out private lenders that are already doing a good job getting funds to the small businesses that need them.”
Kennedy and South Carolina Senator Tim Scott are the principal sponsors of a bill that would prevent the SBA from becoming a direct lender.
Under the current version of the 7(a) Loan Program, the SBA guarantees a portion of the money that private lenders dole out to qualifying small businesses.
A proposal appearing in the White House’s 2025 budget request would create a new direct lending program. The goal, it says, is to address “gaps in access to small-dollar lending.”
Many private lenders are reluctant to make loans for smaller amounts. Maryland Democratic Senator Ben Cardin told a Small Business Committee hearing “I think a well-tailored direct loan program is something that could really help, particularly the smaller small businesses.”
Kennedy and Scott say that would put the government in direct competition with private lenders. They also contend the SBA has a history of incompetence in making direct loans, especially during the Covid pandemic.
The SBA’s Inspector General estimated that more than $200 billion worth of pandemic-era loans (about 17% of those loans) could have been fraudulent.
This is the Biden administration’s second attempt to expand the SBA into direct lending. Kennedy says he was instrumental in defeating a 2021 proposal.