In November, the Small Business Administration formally proposed a rule to lift the moratorium on licenses for Small Business Lending Companies (SBLCs). The moratorium wasn’t some pause borne out of the covid era. It’s been in place since 1982, creating a market of just 14 licensed SBLCs over the span of 40 years. Originally this moratorium had only gone into place because the SBA “did not have adequate resources to effectively service and supervise additional SBLCs” but now in modern times the SBA has determined there’s a problem, “that certain markets where there are capital market gaps continue to struggle to obtain financing on non-predatory terms.” Their solution? Lift the moratorium.
The proposal was published on November 7th and the public’s ability to comment ends on January 6th. One potential outcome of lifting the moratorium is that fintechs could potentially become licensed SBLCs. That appears to be a desired outcome by Funding Circle, who shared their comment on social media on Wednesday.
“We need the SBA to lift the SBLC moratorium in order for us to apply to originate 7(a) loans nationally,” Funding Circle wrote. “This would allow us to leverage our platform technology and more than a decade of lending experience to expand access to 7(a) loans for underserved communities and to do so quicker, at a lower cost and with a superior customer experience.”
With more than 60 comments garnered on the proposal so far, Funding Circle is virtually the only fintech to have weighed in at all. A number of comments from the traditional finance realm were highly critical of the idea of allowing fintechs to become SBLCs, citing their supposed inexperience and perceived failures to responsibly dole out PPP funds. Others expressed a belief that the SBA still did not have the resources necessary to supervise additional SBLCs even after 4 decades and that the agency is already stretched too thin as it is.
“SBA should not expand 7(a) Program until it requests, and receives from Congress, an appropriation to fund the additional SBA staff necessary to supervise additional 7(a) lenders,” the American Bankers Association wrote.
There are complexities and nuances to the pros and cons of the arguments, but the opportunity to comment at all is running out. The deadline is Friday January 6th.
Anyone can submit their own comment here.
Last modified: January 4, 2023
Sean Murray is the President and Chief Editor of deBanked and the founder of the Broker Fair Conference. Connect with me on LinkedIn or follow me on twitter. You can view all future deBanked events here.
Category: Business Lending