Marking the first expansion of the Small Business
Administration’s (SBA) program designed to facilitate growth in underserved
markets in more than 40 years, the Biden-Harris administration recently granted
three new Small Business Lending Company (SBLC) licenses.
SBLC licenses are intended to empower non-depository lenders
to leverage government guarantees when underwriting small business loans, which
reduces risks to such lenders while also reducing borrowing costs for some of
the estimated 33 million small businesses operating in underserved markets.
When the SBA finalized its rule allowing for a new SBLC application
window in June, the agency ended a four-decade moratorium on new licenses. The
Biden-Harris administration has framed the move as a means for filling “gaps”
in responsible financing options for minority-owned small businesses. The
addition of the three new licenses will increase the number of SBLC-licensed
lenders to 17.
“Persistent barriers to capital, especially small-dollar
loans, still pose a challenge to many of the entrepreneurs who power our
economy,” SBA Administrator Isabel Guzman said in a press release. “The
Biden-Harris administration remains committed to filling capital market gaps –
and the expansion of the SBA’s SBLC program after more than 40 years is a
monumental step forward in this crucial effort. With the addition of three new
Small Business License Companies, the SBA will be able to serve even more small
business owners who need capital to start, operate and grow their businesses.”
The government-backing provided to SBLCs positions these
entities to write higher volumes of loans to small businesses than possible
without a government guarantee. SBA will issue up to three new licenses to
qualified lenders based on a review of applications received during this
application window.
The move is intended to complement the SBA’s overarching
plan to streamline credit criteria and reduce red tape for SBA lenders.
The lending organizations selected to receive the new
licenses are Arkansas Capital Corp., Alaska Growth Capital BIDCO, Inc., and
Funding Circle. These companies were evaluated based on the following criteria
before qualifying for the SBLC designation. Specifically, each applicant was
required to demonstrate the following:
·
Existing lending policies in alignment with
SBA’s mission;
·
Historical performance measures, such as
default, purchase and loss rate;
·
Whether they are subject to any legal
proceedings, enforcement action, order or agreement with a regulator or the
presence of other related concerns;
·
Additional performance data associated with the
applicant or its senior managers, along with other relevant information (such
as SBA-observed gaps in small business lending not served by the existing 7(a)
Lender population, including small-dollar lending and loans to underserved
populations);
·
Affiliation with lenders or lender service
providers previously sanctioned by SBA;
·
Adequate capital, fidelity insurance and other
regulatory requirements.
Each of the newly appointed SBLC license holders will target
historically underserved markets, including small businesses in Native, rural
and low-income communities, according to the release. Top of Form
“For over 30 years, Arkansas Capital Corp. has used the SBA
7(a) program to support small businesses in underserved areas of Arkansas where
accessing capital is uniquely cumbersome,” Arkansas Capital Corp. CEO Sam
Walls III said in the release. “Arkansas Capital has bolstered regional
economic development, but now with this SBLC license, we can widen our SBA 7(a)
footprint as well, expanding our services to rural and poverty-stricken areas
in the south to start.”
The Biden-Harris administration framed the move as aligning
with efforts to grant permanent status to mission-based lenders under the
Community Advantage SBLC license, expanding the network to 143 lenders making
small SBA loans.
Despite its expressed support for efforts to support
community development initiatives, the banking and credit union lobbies raised
concerns about the SBLC program expansion, advocating instead for a bipartisan
legislative solution such as the “Community Advantage Loan Program Act of
2023,” which was approved by the Senate Committee on Small Business &
Entrepreneurship in September.
“We support the mission of the 7(a) program to encourage
lenders to provide loans to underserved small businesses,” wrote five financial
trade organizations in a letter to Ranking Members Rep. Roger Williams and Rep.
Nydia Velazquez of the House Committee on Small Business. “However, we remain
concerned that SBA’s decision to lift the moratorium on the number of non-federally
regulated lenders in the 7(a) program while simultaneously loosening
underwriting standards may negatively impact the performance of 7(a) loans,
threaten the integrity of the program, and lead to increased borrower and
lender fees.”
With this change to the 7(a) program, the organizations fear
the SBA will serve as the primary regulator to an unlimited number of lenders with
a lesser level of federal oversight than that of traditional financial
institutions.
“While we understand and fully support SBA’s stated goals of
aiding underserved borrowers, we remain concerned that SBA’s changes do not
meet those goals and may, in fact, create the potential for serious risk to SBA
loan program integrity and to borrowers,” the trade groups wrote. “The recent
rule and SOP changes erode the reliance upon decades-long prudent SBA lending
standards, which have ensured acceptable loss rates and have kept program costs
down for the very borrowers we all aim to aid while avoiding the need for a
taxpayer subsidy.”
The five trade groups undersigned on the letter are the
Consumer Bankers Association, the Credit Union National Association, the
Independent Community Bankers of America, the National Association of
Federally-Insured Credit Unions and the National Association of Government
Guaranteed Lenders.