The Independent Community Bankers of America is pushing back against the Small Business Administration’s proposal to expand its signature lending program to nonbanks.
A Jan. 5 letter written by ICBA First Vice President James Kendrick comes as the SBA considers lifting its 41-year moratorium of licenses for new small business lending companies from 14 and creating mission-based small business lending companies to focus on underserved markets and demographic groups. The SBA would require that mission-based SBLCs contribute a certain percentage of government-guaranteed loans to identified gaps in capital markets.
To the ICBA, the proposal would harm the SBA’s existing success in lending to community banks through the 7(a) program and fails to account for it not being able to “bring liquidity to underserved areas utilizing newly formed, lightly regulated, inexperienced lenders without suffering significant losses.” Also, the ICBA argued that SBLCs would face less stringent risk management assessments and record-keeping and reporting standards.
Before expanding the program, the SBA should show how mission-based SBLCs will support 7(a) lending in ways that community banks don’t already do, according to the ICBA. “SBA has failed to provide any details regarding how new and existing SBLCs will be capitalized, what level of personnel will be required to make critical lending decisions, what types of lending will be appropriate and at what size loan amounts, how fraudulent activity will be detected and prevented, and how a capital markets gap will be identified,” the ICBA wrote.
“SBA should continue its long tradition of achieving success by seeking common-sense, prudently underwritten and highly effective lending opportunities for small businesses through community bank lending programs.”