The Small Business Administration is ending a 40-year moratorium on admitting new nonbank lenders to its 7(a) loan program, a move that opens up the agency’s flagship lending vehicle to fintech participation.
The new rule allows fintechs and other nondepository lenders to apply for a Small Business Lending Company license.
Proponents say the rule, which takes effect May 11, will grow the program’s lender base and increase small-business lending in underserved markets. The rule, however, has drawn push back from bank trade groups who argue adding more nonbanks to the program could threaten its integrity and harm borrowers.
The SBA said it received comments expressing concerns the agency would have difficulty overseeing additional SBLC participants.
Some comments claimed an additional SBA proposal to streamline certain standards, coupled with adding new lenders, would loosen guardrails, weakening the program, the SBA said.
The agency defended its decision, saying it conducted in-depth assessments to ensure it has the capacity to provide oversight and servicing to its entire portfolio of lenders, including any potential additional SBLCs.
The agency, which noted there have been more than 60 holders of the 14 authorized SBLC licenses, said it plans to admit three new SBLCs into the program.
The SBA said other comments in support of licensing new SBLCs stated that non-bank lenders and fintechs often offer flexible credit options and small dollar loans, services that are not prioritized at traditional banks.