A bipartisan group of House and Senate Small Business committee members is calling on the Small Business Administration to pause expanding its flagship 7(a) lending program to fintechs after the recent departure of a key administrator.
According to a May 16 letter to SBA Administrator Isabella Casillas Guzman, the recent departure of Associate Administrator Patrick Kelley has left a leadership void when such leadership will be necessary to implement the rules. In April, the SBA issued a final rule lifting the moratorium on the number of non depository lenders for 7(a) lending.
“Without a permanent associate administrator leading the Office of Capital Access, it makes it more challenging for stakeholders to get timely responses to implementation inquiries and for Congress to conduct necessary oversight of these significant programmatic changes,” the lawmakers wrote.
The letter came less than one week after lawmakers grilled Kelley during a May 10 House Small Business Committee meeting over the proposal he led to allow fintechs to use the program. Republican members noted that PPP loans originated through fintechs were “highly suspicious” at nearly five times the rate of loans from traditional lenders.
“The SBA is throwing away the nine perspective elements of underwriting that lenders have been using for decades to determine if a borrower is eligible for a government-backed loan,” said Small Business Committee Chair Roger Williams (R-Texas). “Instead, lenders will now be able to use whatever lending criteria they see fit considering that taxpayers will go and be the ones on the hook if a significant number of those loans go bad.”
Several Republicans questioned whether the agency would have enough staffing to handle the changes as more employees work from home, a contention Kelley pushed back on. He defended the changes, adding that lifting the moratorium will provide borrowers with more options for 7(a) loans. He predicted that banks and credit unions would still allocate the majority of such loans.
The number of Small Business Lending Company licenses had been capped at 14 since 1982. The SBA is initially admitting only three new SBLCs into the program. The SBA has said the change would increase chances for employee ownership and modernize credit criteria and underwriting standards to incentivize a wider distribution network of small-dollar loans. The rule will allow lenders to make SBA lending decisions based on their existing credit policies for non-SBA loans similar in size; provide additional flexibility for loans of under $150,000; streamline required paperwork for lenders; and simplify and clarify affiliation standards for small business owners and lenders.
Both Democrats and Republicans have said the safety of fintech lending needs to be ensured before they support the expansion. In March, Ben Cardin (D-Md.), chair of the Senate Small Business Committee, and Sen. Joni Ernst (R-Iowa), the committee’s ranking Republican member, released a letter urging Guzman to “go back to the drawing board on the agency’s irresponsible changes made to its loan underwriting while permitting an unlimited number of nonbank financial technology companies.”