Recap: Senate Small Business Committee – Improving Access to Capital in Underserved Communities

By Eliza Joyner

On December 14, the Senate Small Business Committee held a hearing to evaluate the ways in which SBA and Congress can increase outreach to underserved communities though the Community Advantage, Microloan and general 7(a) loan program. In the wake of Paycheck Protection Program (PPP) oversight, much of the conversation centered around ways to increase lending to underserved communities without jeopardizing program guardrails and increasing fraud.

The prevalence of fraud in PPP serves as a reminder of what can happen when program safeguards are not in place. Democrats and Republicans alike discussed the success of the program in reaching micro-businesses and underbanked communities because of the programs expanded lender participation and relaxed regulations. Committee Chair Senator Ben Cardin (D-MD) specifically remarked on the fraud exacerbated by FinTech lenders. As unregulated lenders who took advantage of the speed of loan dispersal, FinTech’s participation “opened the floodgate to fraud.” Senator Marshall (R-LA) noted that in contrast, regulated community lenders such as CDFIs and CDCs are far more likely to know their customer and can therefore better assess a business’s ability to pay back a loan.

Witness Annemarie Murphy, President of SBA Lending for First Bank of the Lake, noted her concern over the two recent SBA proposed rules: Affiliation and Lending Criteria for the SBA Business Loan Programs (Affiliation Rule) and Small Business Lending Company (SBLC) Moratorium Rescission and Removal of the Requirement for a Loan Authorization (SBLC Proposed Rule). In her opinion, together the Affiliation and SBLC Proposed Rules will prove to be catastrophic to the 7(a) program. Ms. Murphy stated that these proposed rules will essentially remove lending standards and welcome unregulated entities (including FinTechs) into the 7(a) program that will be stripped of its “prudent guardrails.” For context, the Affiliation Rule loosens or removes requirements for how lenders underwrite 7(a) loans and the SBLC Rule lifts the existing forty-year moratorium on the number of non-federally regulated SBLCs and creates “Mission-Based SBLCs.”

The other main topic of discussion was how to encourage small dollar lending in the 7(a) program. Witness Mr. Gaines of the Wisconsin Women’s Business Initiative Corporation argued that outreach and continuing education is the key to reaching microbusinesses. Barriers such as language and geographical location often hinder underserved communities. Other witnesses recommended making the Community Advantage (CA) program permanent – arguing that mission lenders aren’t going to make the investment to become a CA lender when the program has a sunset of less than two years. Making the program permanent will give prospective lenders confidence that joining the program is worth their time.

Overall, Committee Members agreed on the importance of SBA’s lending programs and were encouraged on ways the Committee can work to improve outreach. We will continue to work on improving these programs in the next Congress and welcome the bipartisan tone of this hearing.