The Small Business Administration’s flagship loan programme is receiving strong opposition from bank trade groups in the US, which claim that allowing fintech’s to join would compromise the program’s credibility and hurt borrowers.
The new SBA proposal would permit fintech’s and other non-depository borrowers to qualify for a Small Business Lending Company licence, breaking a 40-year ban on new nonbank entrants to the agency’s 7(a) loan program. The change, according to Vice President Kamala Harris, aims to expand the program’s lender pool and boost small-business financing in underrepresented communities.
Traditional businesses, meanwhile, have expressed disapproval of the initiative. The Independent Community Bankers of America stated in a comment document submitted last week that the agency has failed to provide crucial information regarding how it will monitor both existing and new SBLCs, noting that the agency has admitted it does not have the requisite staff numbers or assets to monitor an enlarged SBLC lending environment.
According to ICBA President and CEO Rebeca Romero Rainey, the SBA’s proposition to enable non-bank fintech’s as well as other non-federally governed organisations to take part in its effective 7(a) loan programme could unknowingly endanger the very debtors the SBA is attempting to assist as well as the program’s lending criteria.
The proposal, according to the founder and CEO of non-depository lender Fountainhead, Chris Hurn, which has been an SBLC-licensed lender since February 2019, is a formula for disaster, and the SBA has a hard enough time right now managing the present SBLCs, he added. Loans up to $5 million are available to small businesses through the SBA’s flagship 7(a) program. For loans up to $150,000 and loans beyond $150,000, the small-business agency will guarantee up to 85% and 75%, respectively, of the amount borrowed.
In a comment letter it sent last week, Funding Circle, a fintech that has been advocating for inclusion in the programme for years, praised the SBA’s plan. According to Funding Circle, lifting the ban would enable the fintech to submit a nationwide application to originate 7(a) loans.
The company stated that by doing this, it will be able to use its platform technology and more than ten years of lending experience to extend underserved communities’ access to 7(a) loans more quickly, more affordably, and with an enhanced customer experience. Funding Circle responded to critics’ claims that fintech’s lack the necessary expertise to issue SBA loans by citing its background in government-guaranteed financing in the U.K., where it is based.
One of the main mortgage companies under the Coronavirus Business Interruption Loan and Recovery Loan Schemes said it has partnered with the government-owned British Business Bank since 2013 and has given billions to thousands of firms. The company added that it also took part in the United States’ own pandemic relief programme, lending $685.2 million in Paycheck Protection Program loans to 17,631 small businesses.
Fintech’s should not be allowed access to the government’s lending programme, according to bank trade groups, who cite the PPP as a great example.
The Consumer Bankers Association urged the SBA to hold off on inviting fintech companies into any additional federal government programmes until all investigations are ended, citing a recent House report that found several fintech’s had lax anti-fraud standards and many active investigations into PPP fraud among nonbanks.
The CBA stated, and the ICBA concurred in its own statement, while these investigations are ongoing, some early findings indicate a direct association among PPP fraud and non-bank Fintech engagement in PPP. The trade association advised the SBA not to move forward with SBLC formation until all national, state, as well as local inquiries on PPP fraud are concluded.