(The Center Square) – The two US senators from Louisiana are concerned about a provision in the $ 3.5 trillion congressional budget reconciliation bill that would allocate billions in direct government loans to small businesses.
US Senators John Kennedy and Bill Cassidy, both Republicans of Louisiana, called the plan “ineffective, expensive and unfair,” with 13 other senators in a letter addressed to the leaders of the United States House and Senate and to the chairmen 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 allow nearly $ 4.5 billion over 10 years for the US Small Business Administration (SBA) to issue direct loans 7 ( To).
Loan 7 (a) program provides up to $ 5 million to eligible borrowers to use for real estate, short- and long-term working capital, refinancing of current commercial debt, and âfurniture, fixtures and suppliesâ.
The main concern raised by opposing senators relates to the liability of taxpayers. While the inclusion of private bank lenders in the SBA lending process involves integrated financial oversight, they said, direct government lending invites abuse.
âAiming to get more 7 (a) loans into the hands of the smallest of small businesses by providing the SBA with $ 4.5 billion to run its own loan program is misplaced,â the letter said. âWithout proper parameters, the direct loan program can fall into a lot of fraud and abuse. “
The letter cited an office of the SBA Inspector General report showing that the government-run Economic Disaster Lending Program (EIDL) processed and advanced $ 79 billion in potentially fraudulent loans.
The OIG was alerted to potential fraud issues with the government’s direct lending program when private financial institutions reported red flags when receiving loan deposits.
“We have received complaints about more than 5,000 cases of suspected fraud from financial institutions receiving loan deposits for economic harm,” the OIG report said.
Coincidentally, the day after Senators’ letter of October 6, the SBA Inspector General released another report showing that the EIDL program overpaid $ 4.5 billion in “illogical” claims from small businesses.
The OIG found 700,000 applicants claiming to be sole proprietors and independent contractors falsely received taxpayer-funded grants based on claims that they employed up to 1 million employees. The required tax identification numbers were also not submitted, the OIG said.
“The SBA has approved thousands of grant amounts for applications that were not sufficiently reviewed because no control system was in place to flag applications containing erroneous or illogical information,” the report concludes.
“Compare that to the Paycheck Protection Program (PPP), where only $ 4.6 billion in potential fraud was identified,” senators said of the CARES Act loan program which involved 5,467 private lenders managing 12 million loans. . “Out of $ 800 billion for the full program, this is only 0.6% of the total.”
The proposed SBA 7 (a) loan provision is part of a $ 25 billion small business package that is itself tucked away in the 2,465-page budget reconciliation proposal.
The chair of the House Small Business Committee, Representative Nydia VelÃ¡zquez, DN.Y., said the funding was key to moving the U.S. economy forward beyond the COVID-19 pandemic when it was adopted by her committee in September.
âSmall businesses are the foundation of our economy and ultimately the key to a full economic recovery of our country,â said VelÃ¡zquez. âThe small business policies we have proposed today represent a generational investment in American entrepreneurs and will help businesses recover from COVID now and thrive in the future. “
The Consumer Bankers Association, a retail banking group with members in all 50 states, argues that granting 7 (a) direct loans could hurt private lenders because of the SBA’s favorable lending terms.
In a letter in Congress, CBA President and CEO Richard Hunt said, âIn addition to fraud concerns, a new direct lending program established by Congress raises concerns about a subsidized direct lending program by ABC which will compete with private market lenders who have invested heavily over the years to be able to offer loans 7 (a).
Hunt proposed a compromise involving increased access to government support for very small businesses.
“Perhaps a more constructive policy would be for Congress to consider retaining the provisions of the CARES Act that enhance 7 (a) loans, such as the 100% loan guarantee for loans under $ 150,000,” Hunt said.