The Small Business Administration (SBA) has proposed a rule increasing the number of non-bank lenders in its 7(a) lending program to provide more lending options to underserved small businesses.
business journals reports that the Biden administration and the SBA said in October it wanted to review loan participation. SBA Administrator Isabelle Guzman said in May that the agency was considering expanding the role of fintechs in its lending programs.
Proponents of the proposed rule, which includes fintech representatives, said it will increase access to capital for small businesses, especially in underserved areas. Lawyers and accountants say businesses, especially small ones, are increasingly interested in SBA loans and grants, but some in the banking industry are concerned about expanding access to the banking sector. fintech.
Hundreds of banks participate in the SBA 7(a) lending program, and more than 1,500 banks provided loans in 2022. However, since 1981, the agency has limited nonbank licenses that provide 7(a) loans to only 14 “small business loans”. companies”, which are regulated by the agency.
However, the agency has been working to expand its lending options.
In 2011, the SBA created the Community Advantage Pilot Program (CAPP) to provide smaller 7(a) loans to mission-driven, economic development-focused lenders. The pilot project was extended to 2024 earlier this year.
The SBA has used non-bank lenders in the past. In the early days of the COVID-19 pandemic, the SBA tapped non-bank lenders to help distribute Paycheck Protection Program (PPP) funds.
The SBA plans to add three new non-bank lenders to its network of lenders, depending on the resources it will take to oversee them. Additionally, the agency said CAPP lenders could also apply for the program and that it would not increase the number of lenders the agency must oversee, as they are already part of the SBA’s lending system.
The agency also proposed to remove the existing loan authorization requirement for lenders seeking SBA authorization for 7(a) and 504 loans. Currently, both SBA loans require loan authorization indicating terms and conditions. in which the agency will grant or guarantee business loans.
Instead of its current process, under the agency’s proposed rule, it will rely on the terms and conditions of the loan application submitted by SBA lenders. The agency is also working with HBCU fraternities and sororities to help close the wealth gap.