ICBA’s plan to preserve the SBA loan program

A bipartisan, bicameral plan preserves the SBA program.

By John Hand and Stephen Keen

he trend of pro-community bank legislation with strong bipartisan support continued with the recent introduction of legislation to reform and strengthen the Small Business Administration’s (SBA) 7(a) lending program. Bipartisan legislation introduced in both chambers of Congress is designed to safeguard and strengthen the program so responsible lenders like community banks can continue to use it to fund local small businesses.

Testifying before the House Small Business Committee, ICBA community banker Cynthia Blankenship (pictured, left) expressed ICBA’s support for the Small Business 7(a) Lending Oversight Reform Act (H.R. 4743 and S. 2283). “The Small Business Administration’s 7(a) loan program allows community banks to leverage their unique underwriting skills to more effectively serve the small businesses in their communities,” said Blankenship, chairman and corporate president of Bank of the West in Grapevine, Texas. “A robust and sustainable 7(a) program with broad community bank participation will help small businesses thrive and create jobs, strengthening and extending the economic recovery.”

ICBA believes reforms to the 7(a) program will help maintain its integrity and ensure its longevity. The legislation includes targeted reforms to clarify and codify into law key parts of the 7(a) program. Among the changes, the bill would:

  • strengthen the integrity of all SBA guaranteed lending programs by codifying the SBA Office of Credit Risk Management and Lender Oversight Committee, increasing transparency in the office’s budget and providing guidelines for lender reviews and lender appeals rights
  • safeguard the 7(a) program from abuse by codifying the SBA’s “Credit Elsewhere Test,” which requires lenders to fully substantiate and document the reasons a given applicant cannot be served with conventional credit
  • stabilize 7(a) program funding by allowing the SBA to lift the cap on general business loans by up to 15 percent of the limit if the cap is reached, as it was in 2015, which disrupted SBA lending and required emergency legislation.

ICBA will continue working with the House Small Business Committee and other policymakers to help shape and perfect the 7(a) bill as it makes its way through the legislative process.

S-corp shareholders eligible for new deduction

By John Hand and Alan Keller

The Tax Cuts and Jobs Act of 2017 generally provides that shareholders of Subchapter S corporations and other pass-through businesses are eligible for a deduction equal to 20 percent of their qualified business income, subject to certain limitations. The tax reform law also provides that shareholders in a “specified service trade or business” are not eligible for this deduction, unless they are below a certain income threshold.

“Specified service trade or business” is defined with reference to an existing list of professional fields in the Internal Revenue Code (section 1202(e)(3)(A)). This list includes “financial services” but not “banking,” which is listed elsewhere. Read in its entirety, section 1202 clearly distinguishes the two terms.

ICBA was in ongoing contact with lawmakers and staff during the crafting of the law and was repeatedly assured that shareholders in S-corp community banks would be eligible for the pass-through deduction.

John Hand (john.hand@icba.org) is ICBA first vice president of congressional relations. Stephen Keen (steve.keen@icba.org) is ICBA vice president of congressional relations.

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