Congressional Republicans say that Democrats’ demand to restructure the small-business relief program by setting aside funds for community-based lenders is unworkable and would bring the relief program to a standstill.
Disagreement over the Democratic request is part of the holdup as both parties attempt to approve an additional $250 billion in forgivable loans for the Small Business Administration’s coronavirus relief program, called the Paycheck Protection Program, which was established to help small businesses as part of the massive $2.3 trillion CARES Act relief package that President Trump signed last month.
There is much anxiety that the program could run out of money before the end of the week because $270 billion of the $350 billion originally allocated for the fund had been claimed as of Tuesday evening. According to the Senate Committee on Small Business and Entrepreneurship, the program is burning through more than $3.5 billion every hour that loans are processed.
Congressional Democrats have requested that $60 billion of the small-business relief program be set aside for community-based lenders in the hopes of ensuring that vulnerable small businesses and underserved communities seeking loans are not left behind. Community-based lenders are typically small financial institutions with a focus on their local community and are designed to provide financial assistance to small businesses that have often been turned down by traditional banks. Democrats claim that the program has been slow to help some small businesses, especially ones that are rural or run by minorities, women, or veterans.
“Small businesses are already being hurt because they’re not being served by the big banks that have chosen to only lend to their existing customers,” said a senior Democratic aide in the House of Representatives, “and, even then, in many cases, only when they already [have] lending relationships. They haven’t really opened up to new customers.”
Thus far, authorized banks in the program are lending more to businesses receiving larger loans with payrolls larger than minority businesses typically have, according to analysis done by the Center for Responsible Lending, a nonprofit group that advocates for boosting consumer financial protections.
Republicans on Capitol Hill said they agree with Democrats regarding the need to serve vulnerable communities and minority-owned businesses better during the coronavirus pandemic but disagree strongly that the $60 billion set-aside Democrats want would help achieve that outcome.
“The Paycheck Protection Program is burning through over $3.5 billion an hour. Creating a set-aside pool of money is not just unworkable, it would slow down the program at a time when small businesses need it most,” said a senior GOP Senate aide.
The Republican aide said that the set-aside would require the SBA to track the disbursement of the $60 billion of funds to community-based lenders to make sure the $60 billion red line doesn’t get crossed and too much money is spent. This would be an extremely complicated endeavor, the GOP aide said, and could bring the loan program to a halt.
“A set-aside is unworkable. It would create a separate pool of money, and it would require an additional amount of paperwork and certification that will only complicate an already difficult process,” the aide said.
Democrats said that nothing in their small business relief re-funding bill says that the Trump administration and the SBA would “have to stop what they’re doing now to allocate the $60 billion set-aside for community-based lending entities.”
Furthermore, Democrats said, the Treasury Department has been “painfully slow” in authorizing new lenders to disburse the small-business loans.
Republicans in Congress have hit back, arguing that the loan program has not denied or excluded vulnerable businesses or underserved communities but that they are dealing with the same challenges as other businesses seeking relief from SBA-approved banks and lenders through the program.
“What is hurting underserved communities isn’t that the big banks are denying them,” said a senior GOP aide in the Senate. “When the program launched, they were denying everyone except existing customers.”
Republicans cited SBA data to argue that the big banks aren’t denying underserved communities small-business loans. On the second day of the program, 124,000 loans were processed through the program, totaling $36 billion from over 2,300 lenders, which doesn’t include loans from any big banks. As of Tuesday afternoon, a little over a week after the loan disbursement started, the program has approved over 1 million loans and has over 4,700 lenders approved to give out the loans.
The Republican aide said that the biggest hurdle facing underserved communities is that community banks can’t lend without knowing they have enough financial reserves in-house to be able to disburse funds. Furthermore, the aide said that “nonbank lenders are still getting up and running” in terms of getting loan authorization approval from the Treasury and learning how the small-business relief program works.
