The Independent Community Bankers of America (ICBA) is calling on the Small Business Administration to maintain its moratorium on the number of non-federally regulated institutions, including nonbank fintech companies, that can make loans under its 7(a) program.
The call follows a recent proposal by the SBA to lift the moratorium on Small Business Lending Companies (SBLCs), which has been in place since 1982, and to loosen or remove the 7(a) program’s underwriting requirements. SBLCs are non-depositary lenders, many of which include nonbank fintechs. ICBA officials said this could harm borrowers and undermine the program. It stated that SBA should withdraw its proposals and focus on the community bank partnerships that have helped to expand lending in underserved areas.
“The Small Business Administration’s proposal to allow nonbank fintechs and other non-federally regulated institutions to participate in its successful 7(a) loan program could unintentionally harm the very borrowers the SBA is trying to aid as well as the program’s underwriting standards,” ICBA President and CEO Rebeca Romero Rainey said. “The SBA’s Paycheck Protection Program—which community banks successfully led in local communities while eliminating many lending risks that plagued fintechs’ participation in the program—demonstrates the importance of ensuring federal loan programs benefit from institutions with sound regulatory supervision and prudent lending practices.”
In a comment letter sent to both SBA and Congress, ICBA said the proposal to lift the moratorium on SBLCs would threaten the integrity of a program. Further, ICBA said the proposal lacks details on how new SBLCs would measure success under the program and is missing information on supervision, regulation, loss mitigation, fraud, capital adequacy, and overall safety and soundness.
Also, the uncertainty of the economic outlook, among other factors, raises further questions about the SBA’s proposals to introduce new risks to the 7(a) program, ICBA said.