Dive Brief:

• House Republicans called into question the efficacy of direct lending by the Small Business Administration (SBA) during a hearing Wednesday of the chamber's Small Business Committee.
• The Biden administration has proposed that the SBA be given the authority to make direct loans of $150,000 or less. The agency now is restricted to guaranteeing loans that originate from other financial institutions.
• Republican lawmakers contend the agency is less effective at stemming fraudulent activity than private-sector lenders, citing the potential for fraud the agency's inspector general's office found in connection to the Economic Injury Disaster Loan (EIDL) program.

Dive Insight:

“The SBA demonstrated their inability to discharge emergency lending at every single turn,” Rep. Roger Williams, R-TX, said at Wednesday's hearing. “Yet, my Democratic colleagues want to expand the SBA’s lending authority and kind of reward bad behavior, even when the private sector has proven to be better suited to take on these efforts."

At the crux of the Republican lawmakers’ argument is the discrepancy between the amount of criminal activity suspected during the $800 billion Paycheck Protection Program (PPP) and the $321 billion EIDL.

The PPP — which was administered solely by private-sector financial institutions — was subject to an estimated $4.6 billion in fraudulent activity.

The EIDL, overseen solely by the SBA, saw an estimated $80 billion in potentially fraudulent activity, even though it accounted for less than half the amount of relief as PPP.

“Differences in how these programs were run cannot be overstated,” said Rep. Blaine Luetkemeyer, R- MO. “They should serve as case studies for future public policy debates on how the SBA shall run its programs. Asking the SBA to expand or enhance its direct lending would be counter to the facts we have on the ground.”

During the hearing, SBA Inspector General Hannibal "Mike" Ware indicated that the PPP had a cleaner track record of evading fraud.

Democratic lawmakers argued, meanwhile, that direct loans by the SBA are necessary for women and people of color to receive more funding, and that the agency has learned from its brushes with fraudulent activity in the COVID-19 pandemic's early days.

“There’s a lot of work to be done at the SBA ... to radically change the mandate into direct lending would actually cause significantly more problems. It will not fix them," said Rep. Byron Donalds, R-FL.

The Secret Service estimated that criminals have stolen nearly $100 billion in fraudulent COVID-19 relief applications since the pandemic began.