US Senators in Louisiana Concerned About $ 4.5 Billion SBA Loan Proposal | news
BATON ROUGE, La. – The two US Senators from Louisiana raise concerns about a provision in the proposed US $ 3.5 trillion budget reconciliation bill that would allocate billions in direct government loans to small businesses.
US sensors John Kennedy and Bill Cassidy, both Republicans from Louisiana, named the plan together with 13 other senators Letter addressed to the leadership of the US House of Representatives and the Senate as well as to the Chairs of the Small Business Committees of both chambers.
The provision, known as Section 100502 or Funding for Credit Enhancement and Small Dollar Loan Funding, would authorize the US Small Business Administration (SBA) nearly $ 4.5 billion to direct 7 (a) loans over a 10 year period to forgive.
The 7 (a) loan program Provides eligible borrowers with up to $ 5 million to use for real estate, short and long-term working capital, current business debt refinancing, and “furniture, fixtures and supplies”.
The main concern of the opposing senators is taxpayer accountability. While the inclusion of private banking lenders in the SBA’s lending process involves built-in financial oversight, direct government loans would encourage abuse.
“The goal of getting more 7 (a) loans into the hands of the smallest small businesses by giving the SBA $ 4.5 billion to run their own loan program is misplaced,” it said in the letter. “Without the right parameters, the direct lending program can get into a lot of fraud and abuse.”
The letter quoted an SBA Office of Inspector General report That shows that the government-run Economic Injury Disaster Loan (EIDL) program processed and paid out $ 79 billion in potentially fraudulent loans.
The OIG was made aware of the potential fraud problems of the direct lending program when private financial institutions issued warning messages about receiving loan deposits.
“We have received complaints of more than 5,000 suspected fraud cases from financial institutions that have received loan deposits for economic damage,” the OIG report said.
Coincidentally, the SBA Inspector General published another one the day after the Senators’ letter of October 6th report shows that the EIDL program overpaid $ 4.5 billion in “illogical” claims from small businesses.
The OIG found that 700,000 applicants claiming to be sole proprietorships and independent contractors are receiving falsely taxpayer-funded grants for allegedly employing up to 1 million workers. The OIG announced that the required tax identification numbers were also not submitted.
“The SBA approved thousands of grant amounts for applications that were not properly screened because there was no control system in place to flag applications with incorrect or illogical information,” the report concluded.
“Compare that to the Paycheck Protection Program (PPP), where only $ 4.6 billion.” Out of $ 800 billion for the entire program, that’s just 0.6% of the total. “
The proposed SBA 7 (a) loan deployment is embedded in a $ 25 billion small business package that is itself embedded in the 2,465-page budget reconciliation proposal.
House Small Business Committee Chair Nydia Velázquez, DN.Y., said the funding package was critical to moving the American economy beyond the COVID-19 pandemic when it passed her committee in September.
“Small businesses are the bedrock of our economy and ultimately the key to a full economic recovery of our nation,” said Velázquez. “The small business policy we have advanced today represents a cross-generational investment in America’s entrepreneurs and will help companies recover from COVID now and thrive in the future.”
The Consumer Bankers Association, a retail banking group with members in all 50 states, claims 7 (a) direct lending could undercut private lenders due to favorable SBA loan terms.
In one Letter Speaking to Congress, CBA President and CEO Richard Hunt said, “In addition to fraud problems, a new direct lending program set up by Congress is raising concerns about a government-subsidized SBA direct lending program that will compete with private lenders who have invested heavily over the years to offer 7 (a) loans. “
Hunt made a compromise that included improved access to government support for very small businesses.
“Perhaps it would be a more constructive policy for Congress to consider continuing the provisions of the CARES Act that have improved lending under 7 (a), such as the 100 percent loan guarantee for loans under $ 150,000,” said Hunt.