SBA proposes to lift moratorium on 7(a) nondepository lenders

The Small Business Administration is proposing to lift the moratorium on the number of nondepository institutions—called small business lending companies—that may make loans under SBA’s Section 7(a) program, and to create a new type of SBLC called mission-based SBLCs. Through the 7(a) program, participating lenders make loans of up to $5 million to for-profit small businesses. SBA guarantees up to 85% of the loan for loans up to $150,000, and 75% of the loan for loans greater than $150,000. Currently, SBLCs are capped at 14 nondepository institutions.

SBA proposes to limit mission-based SBLCs to institutions that target lending to an identified “capital market gap”—such as a geographic area, startup businesses, business sector, demographic, or other underserved market—and to make a certain percentage of its loans to in that identified market. SBA does not propose to limit the number of mission-based SBLCs, but instead to accept applications for mission-based SBLCs and for regular SBLCs submitted in response to notice in the solicitations the agency will make periodically through Federal Register notices. SBA anticipates that it has the ability to license and supervise three new additional SBLCs. The agency anticipates that current Community Advantage lenders in good standing may apply and will be immediately approved as mission-based SBLCs.

SBA also proposes to remove the requirement for a loan authorization, stating that this information can be captured through the submission of the terms and conditions into SBA’s E-Tran loan application processing system.

ABA has previously raised concerns about the potential risk posed to taxpayers by expanding 7(a) participation to small business lending companies that are not subject to bank-like regulations, particularly when banks are already meeting demand for 7(a) loans.