SBA Finalizes Rule to Open Flagship 7(a) Program to Fintechs

Courtesy of John Reosti, American Banker

In an effort aimed at funneling more capital to underserved borrowers, the Small Business Administration will eliminate a four-decade-old policy that set strict limits on the number of nondepository lenders authorized to participate in its flagship 7(a) loan guarantee program.

Under a rule that takes effect May 12, SBA is ending the moratorium that capped the number of small-business lending companies permitted to participate in 7(a) at 14. The agency has pledged to ensure approvals of new SBLCs are in line with its oversight capacity, so initially it is opening the door for just three additional nondepository lenders. But with the moratorium, which had been in effect since January 1982, out of the way, there is nothing to prevent SBA from gradually increasing that number as it upgrades its supervisory infrastructure.

The move comes despite concerns by banks, credit unions and prominent lawmakers that SBA might be buying trouble by adopting a policy that could result in many prospective new SBLC licenses being issued to fintechs, a group some have blamed for a disproportionate share of the fraud that marred the reputation of the Paycheck Protection Program.

In a statement Wednesday, the day the new rule was unveiled, American Bankers Association President and CEO Rob Nichols urged Congress to “closely examine SBA’s decision, particularly in light of … significant fraud linked to loans originated by fintech firms during the SBA’s Paycheck Protection Program.”

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