Hinds Today
Hyde-Smith backs bill opposing direct lending by Small Business Administration
By Hinds Today
U.S. Senator Cindy Hyde-Smith (R-Miss.) has joined as a cosponsor of legislation aimed at preventing the Small Business Administration (SBA) from directly issuing loans to small businesses, a move that would return the agency to its previous role as a guarantor rather than a direct lender.
The Protecting Access to Credit for Small Businesses Act (S.2486), introduced by Senator Tim Scott (R-S.C.), seeks to prohibit the SBA administrator from making direct loans under the 7(a) loan program. Traditionally, private lenders have handled these loans with SBA guarantees, but a recent rule change during the Biden administration allowed the SBA to act as a direct lender.
“Mississippi’s small businesses play a vital role in our state’s economy, and they thrive when local lenders, who understand their communities, are leading the way. With this bill, we want to return the SBA to its traditional role as a guarantor rather than a direct lender, which will allow our private, local financial institutions to continue meeting the needs of our local entrepreneurs,” Senator Hyde-Smith said.
Senator Scott also commented on the proposed legislation: “The SBA has a poor track record as a direct lender, especially compared to local banks that know the communities they serve. Allowing the SBA to directly offer loans is not just another example of government overreach, it would also hurt Main Street by creating unnecessary competition with community banks and credit unions. The private sector has a much stronger record of managing loans effectively, and the last thing we need is big government disrupting a system that local businesses rely on.”
The 7(a) program remains central for helping small businesses access capital in the United States. Supporters of S.2486 argue that private banks and lending institutions have shown better performance in underwriting loans and supporting borrowers compared to federal agencies.
A report from 2023 by the SBA Office of Inspector General highlighted issues with government-led lending during COVID-19; specifically, it found $136 billion in potential fraud—about one-third of all funds disbursed—in the Economic Injury Disaster Loan (EIDL) program run by the government. In contrast, fraud identified in the Paycheck Protection Program (PPP), which was led by private-sector lenders, amounted to $64 billion or about eight percent of funds distributed.
Other original cosponsors of S.2486 include Senators John Barrasso, Ted Budd (R-N.C.), Kevin Cramer (R-N.D.), Mike Crapo (R-Idaho), Steve Daines (R-Mont.), James Risch (R-Idaho), and Rick Scott (R-Fla.). The bill has been referred to the Senate Small Business and Entrepreneurship Committee for consideration.
Several banking organizations support this legislative effort, including groups such as Mississippi Bankers Association and American Bankers Association.