Lift the Moratorium on Licensing New Small Business Lending Companies (SBLCs) — Community Advantage SBLC (Small Business Administration)

Summary

Final rule of the U.S. Small Business Administration, 88 FR 21890, that lifts the moratorium on licensing new Small Business Lending Companies (SBLCs) and adds a new type of lending entity called a Community Advantage SBLC. It also removes the requirement for a Loan Authorization. SBA received 119 comments on SBA's proposal: Thirteen comments expressed support and 106 expressed opposition or suggested modifications. On fintech concerns, SBA answered that SBLCs are non-depository lending institutions, which is not synonymous with the term fintech. On oversight, SBA said it will license, service, and provide oversight to three new regular SBLCs.

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Full text

The U.S. Small Business Administration (SBA or Agency) is amending its business loan program regulations to lift the moratorium on licensing new Small Business Lending Companies (SBLCs) and add a new type of lending entity called a Community Advantage SBLC. SBA is also removing the requirement for a Loan Authorization.

SBA received 119 comments on SBA's proposal to remove the moratorium on licensing new SBLCs and create a new type of SBLC called a Mission-Based SBLC. As discussed in the section-by-section analysis below, SBA has determined that the new name for mission-based SBLCs will be Community Advantage SBLCs. Thirteen comments expressed support and 106 comments expressed opposition or suggested modifications to SBA's proposed amendments. The comments covered a range of topics that can be grouped into 9 topics.

Comments stated that licensing additional regular SBLCs and new Community Advantage SBLCs will increase risk to SBA that will in turn increase subsidy costs to SBA and will negatively impact SBA lenders and borrowers, perhaps in the form of higher fees to lenders and borrowers or lower program authority. Some comments speculated that new SBLC licenses may be awarded to financial technology (fintech) lenders and point to reports that in the Paycheck Protection Program (PPP), some fintech lenders were associated with fraud. However, SBLCs are defined as non-depository lending institutions, which is not synonymous with the term fintech. SBA has for many years provided oversite to non-depository entities participating in the SBA business loan programs. This includes SBLCs, non-federally regulated lenders (NFRLs), 504 Certified Development Companies (CDCs), and Microloan Intermediaries. In fact, most all lending institutions incorporate the use of financial technology in their delivery of loans and other financial products. SBA received comments supporting the proposed revisions with these comments stating that PPP lending has different statutory requirements that were enacted in response to an immediate need for capital to prevent a collapse of the small business economy during a worldwide pandemic, and that it is not a fair comparison to equate fraud in PPP with potential fraud in the regular 7(a) loan program, which has well-established and robust operating policies and procedures that have proven successful at protecting the integrity of the program.

Comments expressed concern that SBA will not be able to adequately provide oversight and servicing for SBA lenders. As SBA discussed at length in the proposed rule, SBA conducted in depth assessments to ensure it has capacity to provide oversight and servicing to SBA's entire portfolio of lenders, including any potential additional SBLCs. As a result of these assessments, SBA stated in the proposed rule that it will license, service, and provide oversight to three new regular SBLCs. It should be noted that since January 1982 when SBA imposed the moratorium on licensing new SBLCs, that there have been more than 60 different holders of the 14 authorized SBLC licenses. SBA has successfully overseen transition and operation of various organizational structures of SBLC entities.

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