Spurgin Testimony

Summary

Written testimony of Melissa Spurgin, Chief Financial Officer of First Iowa State Bank, to a committee, dated January 14, 2026 and given on behalf of rural banks that underutilize SBA loan programs. The testimony states that rural banks' limited use of SBA programs is structural, citing documentation and compliance costs that are largely the same regardless of loan size and staffing limits at small banks. It argues that SBA underwriting, equity injection, collateral and personal guarantee requirements do not reflect rural economic realities, and raises concerns about technical defaults and guarantee claw backs. It closes with recommendations to Congress and the SBA, including easing compliance costs for smaller and rural loans and providing clarity so banks can rely on the SBA guaranty.

Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used

Full text

Melissa Spurgin
Chief Financial Officer
First Iowa State Bank

Chairwoman, Ranking Member, and Members of the Committee, thank you for the
opportunity to appear before you today. My name is Melissa Spurgin, and I am the Chief
Financial Officer of First Iowa State Bank, where we serve rural communities across
southern Iowa. I appear before you today on behalf of rural banks that underutilize SBA
loan programs.

I appreciate your focus on the unique challenges facing small businesses in rural America,
and I welcome the opportunity to share what we see on the ground.

Rural banks play a critical role in financing small enterprises. We rely heavily on local
knowledge, long-standing relationships, and firsthand understanding of our communities,
not just standardized financial metrics. Our limited use of SBA programs is not
philosophical. It is structural.

In many rural banks, a single lender may handle commercial, agricultural, and consumer
lending but SBA programs were largely designed for lenders with scale, specialized staff,
and urban market dynamics in mind. SBA loans require significantly more documentation,
certifications, and post-closing compliance than conventional loans, with lender staff
requiring continuous training due to frequent rule changes. Combined with the persistent
talent shortages and high training costs faced by many rural banks, the departure of just
one employee can eliminate a bank’s SBA capability entirely.

This is especially challenging because rural businesses typically need smaller loans, not
multi-million-dollar financing. SBA underwriting and servicing costs, both in terms of
compliance and staffing, are largely the same regardless of loan size or market area, so the
economics often do not work for the small-dollar loans most common in rural
communities. Yet the impact of those loans on local jobs and local economies is
substantial, often more significant than larger urban loans.

Underwriting standards also frequently fail to reflect rural economic realities. Little weight
is given to the judgment of experienced rural lenders, with specific requirements around
aspects of a loan, like its debt service coverage ratio, that do not account for seasonal or
cyclical income patterns. This results in creditworthy businesses failing underwriting not
because they cannot repay, but because of timing mismatches in cash flow.

Equity injection requirements, similarly, fail to reflect rural asset structures. Many rural
businesses are asset-rich but cash-poor, with wealth tied up in land, equipment, or other
assets accumulated over generations. Allowing borrower equity in these assets to partially
satisfy equity requirements would expand access without weakening borrower
commitment or increasing risk.

Collateral and personal guarantee requirements also need greater flexibility. Rural assets
are often inherited, jointly owned, or held in trusts. SBA collateral rules can require costly
and time-consuming legal restructuring simply to pledge assets or obtain guarantees.
Documentation alternatives should also be permitted for long-established rural
businesses with informal but reliable operating histories. Community bank relationship
knowledge should be recognized as a compensating factor in underwriting.

Aligning SBA underwriting with rural economic realities would expand access, increase
program utilization in rural markets, and do so without materially increasing default risk.
These are flexibility improvements—not loosened standards.

Rural banks also have significant concerns about the risk of technical default and
guarantee claw backs. SBA guarantees can be denied or reduced due to minor paperwork
or procedural errors, even when the borrower performs as agreed, and rural banks, as I’ve
already mentioned, typically lack the in-house SBA specialists or legal teams to manage
this risk. A single denial of a guarantee can have a meaningful impact on a small bank’s
capital. In practice, the guarantee is only as reliable as the compliance process—and that
process has proven unforgiving.

As a result, rural banks continue to lend, but we do so outside SBA programs. We rely on
portfolio loans, relationship-based underwriting, flexible renewals during downturns, faster
credit decisions, and long-term customer support during economic stress. Rural banks are
lending. But we are not able to reach every creditworthy rural entrepreneur without SBA
support. Borrowers most affected are startups and those on the economic margins of rural
communities.

The path to greater rural bank participation is reducing friction in the system. I believe
Congress and the SBA can better achieve the goals of supporting entrepreneurs and
increasing access to capital in rural America by:
    • Easing the compliance burden and cost structure for smaller loans, and for loans in
       rural areas.
    • Recognizing the value of the judgment and relationship knowledge of the
       community banker.
    • Providing flexibility in acceptable equity, collateral, and personal guaranty
       requirements and how they’re documented.
    • Ensuring greater clarity so banks can truly rely on the SBA guaranty without risking a
       claw back on a technicality.
    • More effectively marketing resources such as the Small Business Development
       Centers to ensure both banks and borrowers understand what support exists.

The SBA, with these reforms, can be a better and more impactful partner with community
banks in Iowa and across the country. We stand ready to be a partner in helping achieve
this worthy goal.

Thank you for the opportunity to share these perspectives. I look forward to answering your
questions.


File and source

File

Spurgin_Testimony.pdf

Size

68,549 bytes

SHA-256

9130e5f3012bc5cee2d05f3036cbcfac3899e201e85242d48aab228bc3137782

Our copy

Spurgin_Testimony.pdf

Original

No public link identified.