December 28, 2022

NAFCU writes to SBA on affiliation, lending criteria for business loan programs

SBANAFCU Regulatory Affairs Counsel James Akin wrote to the Small Business Administration (SBA) yesterday in response to the agency’s proposal to change regulations governing SBA's 7(a) Loan Program and 504 Loan Program. In the letter, Akin said NAFCU urges “the SBA to safeguard the 7(a) Loan Program by rescinding or pausing this rulemaking until its impact in relation to Small Business Lending Companies (SBLCs) is better understood.”

The letter offered NAFCU’s support of certain portions of the proposed rule, particularly that it “reduces burdens and costs on credit union SBA lenders.” However, Akin shared concerns with the timing of the proposal, noting that shortly after issuing this proposal, “the SBA published a notice of proposed rulemaking to lift the moratorium on licensing new SBLCs and add a new type of entity called a Mission-Based SBLC (SBLC Proposed Rule).” The proposed rescission of the moratorium on the licensing of new SBLCs would allow non-depository institutions, including fintechs, to apply to participate in the SBA’s 7(a) lending program. NAFCU requests the SBA to delay a final rule for both proposals until “it has adequately considered the impacts of each rule upon the other, and the combined impact of both.”

Additionally, the letter touched on the portion of the proposal which incorporates a new underwriting standard. The proposal states that “lenders must underwrite SBA loans using the same appropriate and prudent, generally acceptable commercial credit analysis processes and procedures used for their similarly-sized, non-SBA guaranteed commercial loans where they bear all risk of loss in the case of loan default.” However, Akin noted non-depository lenders are not subject to the same level of underwriting requirements as credit unions, which raises concerns due to the uneven playing field between credit unions and fintechs.

Akin also expressed NAFCU’s concern with involving the politically appointed SBA Administrator in the process, as the proposal would give the Administrator “the ability to make final reconsideration of denial of a loan application or loan modification request.” In addition, Akin noted NAFCU’s support for the revision of its affiliation provisions to simplify the program requirements.

The letter concluded by explaining how this proposal “cannot be evaluated in a vacuum,” and must be considered along with the SBA’s proposal to lift the moratorium on licensing new SBLCs. Due to this, Akin said the SBA should heed the recommendation of the Select Subcommittee on the Coronavirus Crisis and pause these proposals until the impacts are fully understood.

NAFCU and other trade groups previously wrote to Congress to express concerns over these proposals, and reiterated issues in a request last week to SBA Administrator Isabella Casillas Guzman for the SBA to withdraw the proposal. The association will continue to engage the SBA to ensure the safety and soundness of its business loan programs.