ABA opposes SBA’s lifting of moratorium on non-depository 7(a) lenders

The American Bankers Association expressed opposition to the Small Business Administration’s proposal to lift the moratorium on the number of non-depository lenders in the 7(a) program in a comment letter submitted this week. Through the 7(a) program, banks and other lenders provide loans to underserved small businesses. The number of non-depository institutions in the program has been capped at 14 for decades, but that cap would be eliminated under SBA’s proposal.

ABA also expressed strong concerns with SBA’s separate proposal to loosen underwriting standards in the 7(a) program, noting recent reports that found limited SBA oversight of non-depository lenders in the agency’s programs and significant fraud committed through Paycheck Protection Program loans originated by fintech firms. “The expansion of the 7(a) program to non-depositories that are not subject to comparable supervision and lending standards as depository institutions poses risk to small business borrowers and to the performance of SBA’s 7(a) portfolio,” said ABA.

In addition, ABA asked SBA to continue to require 7(a) lenders to complete a loan authorization, reevaluate whether the “principle of control” standard should be maintained as a separate basis for finding affiliation between businesses, clarify that 7(a) funds cannot be used for investment purposes, prohibit review by SBA’s administrator of denied applications, and clarify the application of SBA’s proposals to the agency’s existing requirement to maintain hazard insurance on all collateral for SBA loans.