Main Street Monday – Community Banks are Necessary for Lending to Underserved Markets and Preventing Fraud

April 4, 2022

Delaney Sexton
Contributing Editor

Main Street Monday – Community Banks are Necessary for Lending to Underserved Markets and Preventing Fraud

“The Paycheck Protection Program rapidly and effectively deployed critical funding to small businesses, self-employed workers, not-for-profits, churches, schools, and other borrowers nationwide. The Program has helped these entities to maintain their employment and survive the economic shutdowns of 2020 and early 2021. We are in a better place today because of the PPP,” says President and CEO of PriorityOne Bank, Robert Barnes.

At the House Committee on Small Business hearing, “An Empirical Review of the Paycheck Protection Program”, Robert Barnes provided testimony on behalf of the Independent Community Bankers of America (ICBA). Throughout his testimony, he talks about the significant role that community banks played in the success of PPP and lending to underserved markets.

He shares the following facts about community banks’ role in PPP lending to underserved markets:
• Community banks accounted for almost 60% of the program’s total loan amount.
• Community banks made over 75% of PPP loans to majority-minority communities.
• 90% of PPP loans to communities with an average household income of less than $40,000 per year were provided by community banks.
• More than 75% of PPP loans to communities with a poverty rate of at least 20% and a long-term unemployment rate above 10% were approved by community banks.

A key takeaway from the PPP program is that “integrity must be safeguarded in the PPP and other SBA programs” according to Robert Barnes. Future lending programs should try to reduce fraud and abuse to the greatest extent possible because it can have a ripple effect on other SBA programs resulting in harm to both the lender and borrower. “We are grateful for this committee’s strong support for the 7(a) program. Significant reforms to this successful program must be taken with great caution and care. A high volume of poorly underwritten loans could cause the 7(a) program to prematurely exceed its lending cap and shut down, leaving applicants stranded. SBA programs play a critical role in supporting businesses and employment. Fraud has the potential to undermine these programs.”

Barnes finishes by reviewing SBA direct lending. “The involvement of banks is critical to reducing fraud. Community bankers know their customers. They know the difference between a legitimate business and a fake business set up to perpetrate fraud because they meet with business owners, visit their businesses, and see their operations. The SBA is not on the ground in many local markets and cannot assess borrowers firsthand. This distance from the borrower makes direct lending vulnerable to fraud.”

ICBA/Robert Barnes Testimony – House Hearing