SBA Expands Lending Network to Provide More Small Business Loans
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The US Small Business Administration (SBA) has announced plans to expand its lending network to invite more non-bank lenders, including fintechs, to its flagship 7(a) and 504 loan programs. The agency is lifting a 40-year moratorium that previously prevented it from bringing in new lenders to its loan programs, which aims to close the access to capital gap faced by entrepreneurs in underserved areas. The SBA expects that by expanding its lending network, these additional lenders will extend loans to entrepreneurs who may have been overlooked by traditional financial institutions, especially small-dollar loans.
The SBA has constrained its lending network to just 14 non-bank Small Business Lending Companies (SBLC) since 1982. However, small-dollar lending is on the decline, and the amount of lenders originating 7(a) loans under $50,000 has dipped by more than 40% in the past five to seven years. To address this, the SBA has created a new Community Advantage SBLC license for its non-profit mission-oriented lenders. The Community Advantage pilot loan program, which launched in 2011, extends loans between $50,000 to $250,000 to female, minority, and veteran entrepreneurs operating in underserved communities.
The final rule, which goes into effect on May 12, also allows fintechs and alternative lenders to become SBLCs without having to wait for one of the 14 existing SBLCs to sell their license. However, there are only three licenses up for grabs at the moment for for-profit institutions. Should increased demand make more than three additional SBLCs necessary, the SBA might need more money.
US Small Business Administrator Isabella Casillas Guzman said the rule changes demonstrate the Biden Administration’s commitment to making lending more equitable. “These rule changes demonstrate that commitment by providing government-guaranteed lenders with all the tools they need to close the gaps that still exist for small businesses who need capital,” Guzman said in a statement.
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DIANA RANSOM. The SBA After PPP. inc.com. Published April 12, 2022. Accessed April 18, 2023. https://www.inc.com/magazine/202304/diana-ransom/the-sba-after-ppp.html
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DIANA RANSOM. Fintechs to Start Issuing 7(a) Loans Up to $5 Million If New SBA Rule Change Is ApprovedThe change, if greenlighted, would lift a 40-year moratorium to expand the SBA’s lender base. inc.com. Published October 5, 2022. Accessed April 18, 2023. https://www.inc.com/diana-ransom/small-business-loans-sba-backed-fintechs.html
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