By: Ken Chase
In a recent comment letter from the Independent Community Bankers of America (ICBA), the trade group called on the U.S. Small Business Administration (SBA) to abandon plans to allow more nonbank entities to participate in the agency’s 7(a) loan program. The ICBA argues that the planned expansion of the program could have unforeseen negative consequences for the program and borrowers.
The group detailed its opposition to the rule change in a press release:
“The Small Business Administration’s proposal to allow nonbank fintechs and other non-federally regulated institutions to participate in its successful 7(a) loan program could unintentionally harm the very borrowers the SBA is trying to aid as well as the program’s underwriting standards,” ICBA President and CEO Rebeca Romero Rainey said today.
“The SBA’s Paycheck Protection Program—which community banks successfully led in local communities while eliminating many lending risks that plagued fintechs’ participation in the program—demonstrates the importance of ensuring federal loan programs benefit from institutions with sound regulatory supervision and prudent lending practices.”
The SBA has enforced a moratorium on new Small Business Lending Companies (SBLCs) since 1982, and has previously claimed that it lacked the resources and staffing needed for any expansion of the 7(a) program. According to some SBLC-licensed lenders, the agency already struggles to oversee its current program lender base.
That 7(a) program enables the SBA to provide guarantees on small business loans of as much as $5 million dollars. If the moratorium is lifted, participating fintech companies would gain the ability to provide 7(a) loans to borrowers throughout the U.S.