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ICYMI: Restore loan rules that assist small businesses in Iowa


By: John Sorensen

As published in The Des Moines Register

For decades, the U.S. Small Business Administration has worked with lenders to extend affordable loans to small businesses through the 7(a) loan program.

Despite this long history between the SBA and the banks that have served their communities, the SBA recently issued new rules that may make it harder for Iowa small businesses to access capital from their local lenders. These rules also reduce the requirements for lenders to approve loans backed by the SBA, putting the program and taxpayer dollars at risk.

Bank lending is particularly important in Iowa, where the Federal Reserve found the overwhelming majority of credit to small businesses come from Iowa banks. These time-tested lender-borrower relationships were critical during the pandemic, when Iowa banks partnered with the SBA to deliver 95% of the $8 billion in Paycheck Protection Program loans that went to Iowa small businesses.

In July, the Senate Small Business Committee acted to curb these irresponsible rules. During a time when compromise between political parties is rare, Sen. Joni Ernst (R-Iowa), the senior Republican on the committee, worked with her Democratic counterpart, Sen. Ben Cardin (D-Md.), to pass the Community Advantage Loan Program Act of 2023 with overwhelming bipartisan support. The bill must now pass the full Senate.

The bill restores common-sense underwriting requirements and strengthens the SBA’s oversight office to monitor non-bank lenders who lack a sufficient regulator. This kind of lender originated the majority of fraudulent PPP loans during the recovery from the pandemic. The legislation would protect taxpayers by putting limits on their participation in the program, while strengthening oversight of the program overall.

It would also protect borrowers by requiring any new non-bank lender that enters the program to have its SBA lending overseen and approved by the SBA directly. This allows SBA to prevent borrowers from taking out loans that may have predatory loan terms.

Finally, the bill addresses the need for getting capital to underserved communities by codifying an SBA program designed to do just that — the Community Advantage Loan Program.

The Community Advantage Loan Program Act would put in place important guardrails and consumer protections around the SBA’s new rules that would otherwise have the potential to increase defaults on taxpayer-backed loans, threaten the integrity of a valuable capital access program, and lead to increased fees for borrowers.

Thank you, Senator Ernst, for protecting the interest of Iowa’s small businesses, bringing capital to underserved communities and promoting business growth.

 John Sorensen is president and CEO of the Iowa Bankers Association.

As published in The Des Moines Register.