Newsroom

The Small Business Administration (SBA) Friday issued a proposed rule to allow new lenders to apply for a license to offer SBA-backed 7(a) small business loans. The SBA has had a moratorium on new Small Business Lending Companies (SBLCs) since 1981.

SBLCs are non-depository lending institutions authorized by the SBA only to make 7(a) loans and loans to intermediaries in the SBA’s Microloan program. The moratorium on new licenses was put in place as the SBA didn’t have adequate resources to effectively service and supervise additional SBLCs.

While the SBA’s proposal is intended to grow the number of lenders that receive its loan guarantee – increasing small business lending, particularly in smaller dollar and underserved markets where borrowers are most acutely shut out of current lending – NAFCU is concerned it could put small businesses at risk by allowing lenders into the SBA space that are unequipped to effectively service SBA loans. Additionally, unlike the majority of 7(a) lenders, which are federally-regulated depository institutions, SBLCs are regulated, supervised, and examined solely by the SBA which could create potential for regulatory arbitrage, especially by fintechs.

Under the proposal:

• fintechs and other alternative lenders would be able to apply for a license to offer SBA-backed 7(a) loans;
• the SBA would divert resources to service and supervise SBLCs that might otherwise be used to increase SBA lending by credit unions, potentially undermining the existing successful public-private partnership in SBA loan programs;
• the SBA would add a new definition for mission-based SBLC, which would be a specific type of SBLC that is a nonprofit organization whose purpose is to fill an identified capital market gap; and
• the requirement for loan authorization under the 7(a) and 504 Loan Programs would be removed.

NAFCU will continue to review the proposal and issue a Regulatory Alert to member credit unions to gather feedback. Comments are due to SBA Jan. 6, 2023.