Senate legislation seeks to limit the fintech lending strategy of the Small Business Administration
The Small Business Administration (SBA) has made a significant decision to end a 40-year moratorium on admitting new nonbank entrants to its 7(a) loan program. This move allows fintechs and other nondepository lenders to apply for a Small Business Lending Company (SBLC) license.
However, the decision has not been met with unanimous approval. Lawmakers and bank trade groups have raised concerns that the new rule will weaken the 7(a) program's guardrails, potentially leading to loosened underwriting standards, increased risk for lenders, taxpayers, and small businesses, and even fraud, as reported in some cases with fintechs and the Paycheck Protection Program.
Sen. Ben Cardin, the Small Business Committee Chairman, and the panel's ranking member Sen. Joni Ernst, have introduced a bill to rein in the Biden administration's efforts to grant fintechs access to a government-backed small-business loan program. The bill, which passed the Senate Small Business and Entrepreneurship Committee on Wednesday, aims to enhance oversight of the program's nonbank participants and includes restrictions on the number of new nonbank entrants allowed into the 7(a) lending program.
Sen. Joni Ernst has expressed concerns about an unlimited number of fintechs entering the SBA's small-business lending company program, especially if it comes with loosened underwriting standards. She compares the revamping of the SBA program to the 2008 mortgage crisis and student loan crisis, stating it could burden borrowers with unaffordable debt.
On the other hand, Vice President Kamala Harris has touted the move, stating it would increase lending in underserved markets. The compromise negotiated by Ernst and Cardin also includes measures to enhance oversight of the program's nonbank participants and implement anti-money laundering and know-your-customer requirements.
The SBA defends its decision, stating it has conducted in-depth assessments to ensure it can provide oversight and servicing to its entire portfolio of lenders. Bank trade groups, however, continue to criticize the decision to open the program to new SBLCs.
The identity of the senator who introduced the legislation restricting the Biden administration's actions to grant fintech companies access to a government-backed small business credit program remains undisclosed in the provided search results.
This decision and the subsequent legislative response mark a significant development in the small-business lending landscape, as the SBA seeks to balance the need for innovation and competition with the need for prudent risk management and oversight.
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