Senators Tim Scott, R-SC, and John Hickenlooper, D-CO, introduced a law On Wednesday, that would allow fintech lenders to participate in the Small Business Administration (SBA) flagship loan program by lifting an almost four-decade-old moratorium on the issuance of new Small Business Lending (SBLC) licenses.
The SBLC program, which was capped at 14 licenses in 1982, allows non-depository credit institutions, such as fintechs, to participate in the SBA’s 7 (a) loan program.
“Our bipartisan bill will modernize the SBA’s main lending program to help underserved small businesses grow and prosper,” Hickenlooper said in a statement Wednesday. “You shouldn’t need a big bank to get an SBA loan.”
Last year, for the very first time, fintechs had direct access to one of the SBA’s lending programs through their inclusion as direct lenders in the Paycheck Protection Program (PPP), loans- government-guaranteed grants aimed at helping small businesses overcome the coronavirus. pandemic.
After being sidelined from the first weeks of the program last year, the eventual inclusion of fintechs in the PPP gave them a foot in the door in times of crisis, a move that many hoped would result in permanent access to the SBA 7 flagship product (a.
Ryan Metcalf, head of U.S. regulatory affairs at fintech lender Funding Circle, said the bill would allow historically underserved communities to access more loans, and ensure more lenders are available to provide emergency loans to the government in the event of a new economic crisis. .
“When other online lenders are allowed to offer 7 (a) loans nationwide, more financial institutions will have the opportunity to invest in small businesses due to the reduced risk provided by the government guarantee.” said Metcalf, who helped the author of the Expanding Access to Credit for Small Businesses. “The result would be that younger, higher credit risk businesses will have access to affordable credit; more small rural businesses will have easier access to more lenders; and lenders will be able to offer lower rates and longer terms to small businesses. cumulatively lead to a faster and more equitable economic recovery and expansion of Main Street. ”
The bill comes as SBA administrator Isabel Guzman has signaled her willingness to maintain fintech involvement in SBA programs beyond PPP.
“The adoption of fintech in the banking sector … is really essential”, Guzman told lawmakers during his confirmation hearing in March. “I think expanding the distribution of capital will improve access, so I look forward to working with lending institutions at large to ensure we can keep them engaged in SBA programs. This is a record number of different lenders engaged in SBA than ever before, and I think we need to take advantage of it. “
Metcalf said he expects traditional banks to be in favor of Scott and Hickenlooper’s bill.
“[I]t offers them more partnership opportunities for origination and sale of loans with fintech and [Community Development Financial Institution] lenders, ”he said. “This includes the ability to purchase loans made in low to moderate income areas, helping banks meet their needs under the Community Reinvestment Act.
Financial institutions that do not have the capacity to run a 7 (a) program can partner with these new lenders as Loan Service Providers (LSPs) to serve their clients and generate income opportunities, a. -he adds.