Senator Ernst Calls for SBA to Scrutinize Recently USDA-Barred Lenders
The chair of the U.S. Senate committee overseeing the Small Business Administration (SBA), Senator Joni Ernst, has issued a call for the agency to investigate the performance of 10 lenders recently expelled from the Department of Agriculture’s (USDA) flagship loan-guarantee program. This move could indicate a growing concern about the overall health of government-guaranteed loan portfolios.
Senator Ernst, a Republican representing Iowa, penned a letter to SBA Administrator Kelly Loeffler, urging her to “urgently review” loans originated by the institutions who lost their approved-lender status by USDA last month. This action could be a precursor to the SBA beginning to sanction lenders, akin to the USDA’s recent actions.
Senator Ernst highlighted her concerns, stating, “SBA must determine whether taxpayers were exposed to unnecessary risk and ensure bad actors are not exploiting federally guaranteed loan programs.”
The Implications for SBA and USDA Loan Programs
The SBA’s 7(a) program and the USDA’s OneRD program provide loan guarantees to private-sector lenders for businesses. The 7(a) program is significantly larger, boasting $123.4 billion in active regular 7(a) loans as of September 30, 2025. In contrast, the OneRD’s total portfolio recently surpassed $12 billion.
Eight out of the 10 lenders expelled by the USDA are active participants in the 7(a) program, prompting Ernst’s call for review. The USDA’s decision to revoke these lenders and Ernst’s subsequent letter may indicate a broader shift towards accountability and portfolio quality within all government-backed lending, according to industry experts.
Accountability and Compliance in Government-Backed Lending
Dave Bohrman, co-founder and vice president of marketing at Tax Guard, a servicer of both SBA and USDA loans, suggested that there have been “signals in this direction for a while now.” Bohrman cited the controversy over fraudulent Paycheck Protection Program loans and Loeffler’s reversal of the more lenient “Do-What-You-Do” underwriting standards of the Biden-era SBA as evidence of this trend.
Under Loeffler’s leadership, SBA has increased fees and tightened lending rules for the 7(a) program in response to a surge in defaults and delinquencies.
A USDA spokesperson remarked that the revocations were “an unprecedented action” prompted by “significant findings of noncompliance with the regulatory requirements of the OneRD program.”
A Case of Noncompliance
In her letter, Senator Ernst singled out one lender, Community Bank & Trust – West Georgia, which failed last month. This institution had been a participant in both the OneRD and 7(a) programs. According to Ernst, “When a small community bank becomes a top SBA lender one year and fails the next, something went seriously wrong.”
Several lenders on the USDA revocation list have expressed their intent to appeal the agency’s decision. Among them, Byline Bancorp in Chicago and BOM Bank in Louisiana defended their compliance practices and commitment to positive impact in rural communities.
As this situation continues to unfold, it underscores the need for stringent oversight and accountability in government-backed lending programs, to safeguard taxpayer interests and maintain the integrity of these crucial financial support systems.
Source: American Banker
