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How Might the SBA Seek to Expand Its Loan Products as BBB Faces an Uncertain Future?

  • Potential demise of the Build Back Better Act would also scrap a provision that would allow the U.S. Small Business Administration to provide direct loans
  • Provision sets aside $2 billion to allow the SBA to directly make loans of up to $150,000, or up to $1 million for certain recipients
  • Former SBA official suggests the agency could seek to expand its pool of lending partners as an alternative to direct lending

Summary by Dirk Langeveld

The Build Back Better Act, which seeks to advance President Joe Biden’s agenda on several social policy and environmental issues, currently faces an uncertain future. One lesser known provision that could disappear if the legislation fails is an expansion of the U.S. Small Business Administration’s direct lending authority.

The bill sets aside $2 billion enabling the SBA to make direct loans of $150,000 or less under its 7(a) program, and loans of up to $1 million for small manufacturers and small contractors. The SBA currently only provides direct loans for disaster assistance.

The proposal sparked pushback from Republicans and members of the banking industry, who argue that private lenders are more efficient than the SBA and offer better protections against fraud. A competing bill has been introduced to bar direct lending under the 7(a) program.

  • Advocates say SBA direct lending can expand capital access to underserved entrepreneurs and others struggling to secure funding
  • Michael Roth, a former SBA interim chief, spoke with about the options open to the SBA if the direct lending proposal falls through
  • Roth says data suggests that the existing 7(a) network could exclude Black and Hispanic entrepreneurs, who make up only a small share of 7(a) loans
  • Potential options could include expanding the pool of SBA lending partners to distribute more funds through fintechs, credit unions, and smaller banks
  • Democratic lawmakers are vowing to push forward to vote on the Build Back Better Act early next year, but successful passage seems uncertain after Senator Joe Manchin said he would not be able to support the bill.
  • However, the legislation could potentially be revised further in an effort to win broader support

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