The Honorable Isabella Casillas Guzman, Administrator, U.S. Small Business Administration (April 24, 2024)

Summary

A letter dated April 24, 2024, to Administrator Isabella Casillas Guzman of the U.S. Small Business Administration (SBA), with signature lines for Roger Williams, Chairman, House Committee on Small Business, and Joni K. Ernst, Ranking Member, Senate Committee on Small Business and Entrepreneurship. The letter concerns the SBA's award of a Small Business Lending Company (SBLC) license to Funding Circle. It states that the license was granted despite public statements by the Funding Circle CEO about the capital needed for the 7(a) loan program, and that this points to a failure in the SBA's vetting of applicants. It requests a briefing to the Committees of jurisdiction in both the House and Senate, asks the SBA to immediately revoke the license, and lists documents requested, including Funding Circle's complete written application.

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                                                April 24, 2024

The Honorable Isabella Casillas Guzman
Administrator
U.S. Small Business Administration
409 3rd Street S.W.
Washington, D.C. 20416

       We write regarding the Small Business Administration’s (SBA) award of a Small
Business Lending Company (SBLC) license to Funding Circle.

        Last year, the SBA announced it would be lifting a 40-year moratorium on licensing new
SBLCs to participate in the 7(a) loan program, stating its intent to immediately license three new
SBLC lenders. Members in both the House and Senate expressed concerns over this expansion,
citing doubts about the SBA’s capacity to serve as the primary regulator for additional SBLCs.
Now, only a few months after the licenses were announced, reports indicate that Funding Circle,
one of the non-depository financial institutions selected to receive an SBLC license, has been
granted final approval of the license.1 The license has been granted despite public statements by
its CEO that it does not plan to invest the intensive capital required to participate in the 7(a) loan
program, and instead announced its U.S.-based operations would be sold to mitigate losses.2
These statements from Funding Circle point to a fundamental failure in the SBA’s vetting of
applicants for the SBLC licenses, and further reinforce the bipartisan concerns raised by
members last year about the SBA’s lack of oversight capacity.

       As you know, an SBLC license provides a lender with the ability to obtain government
guarantees when underwriting small business loans. This allows lenders to underwrite a higher
volume of loans to small businesses than would otherwise be possible due to risk. Since either
American taxpayers or borrower fees foot the bill for any loan losses, an SBLC award process
requires careful vetting and exhaustive scrutiny.

        When you testified to the House Committee on Small Business on March 23, 2023, you
said, “I know that the SBA has a rigorous application process for the SBLC program…”
According to SBA’s own regulations, an SBA Supervised Lender applicant must submit a
written plan containing information about the organization as well as its current and proposed
lending activities.3 Capital adequacy is required to be demonstrated in this plan. However, in its
most recent earning calls, the CEO of Funding Circle stated that 7(a) lending “…would require a
significant amount of capital. I mean you saw the losses in the U.S. this last year were $33
million. Going forward, we would have to [further fund and capitalize Funding Circle US]…and
we don't believe it's the best use of our capital to invest in those loans in the U.S.”4 It is

1 John Reosti, SBA forges ahead with Funding Circle license despite pushback, AMERICAN BANKER (April 4, 2024).

https://www.americanbanker.com/news/sba-forges-ahead-with-funding-circle-license-despite-pushback
2 Id.
3
  13 CRF § 120.470 (2024).
4
  Funding Circle Full Year Results, Audio Webcast Transcript (Mar. 7, 2024). https://fch-12917-s3.s3.eu-west-
2.amazonaws.com/live/4717/0982/2261/Funding_Circle_-_Transcript_20240307.pdf
irresponsible for the SBA to have issued a new SBLC license to Funding Circle at a time when
their own CEO was announcing its departure from the U.S. market as a result of its net operating
losses, and publicly questioned the financial viability of its U.S. business.

         Notably, the questions about Funding Circle’s financial viability were apparent during the
SBLC license application period, when Funding Circle’s half-year performance report showed a
$16.6 million net operating loss on June 30, 2023.5 Clearly, these issues are not new. The
business has been compounding losses for years - reporting a pre-tax loss of $33.2 million in
2023 and $12.9 million in 2022.6 It is deeply concerning that the SBA is doubling down on
awarding an SBLC license to a company that has been, and continues to be, in such a weak
financial position. If the company has been unable to properly manage its balance sheet in the
past, it should not have been granted the privilege to make government-guaranteed loans.

         It is unconscionable that the SBA issued an SBLC license to a non-depository financial
institution looking to grow its way into profitability on the back of the American taxpayer,
especially to a company that held a central role in lobbying to lift the SBLC moratorium. The
news that Funding Circle is now considering offers to sell its U.S.-based operations only raises
further questions about how forthcoming it was in its application to the SBA. Granting Funding
Circle an SBLC license now would set a troubling precedent on setting a monetary value for this
government-backed license and its potential use in enticing buyers.

        To that end, we request that the SBA provide a briefing to the Committees of jurisdiction
in both the House and Senate, and for the SBA to immediately revoke Funding Circle’s SBLC
license. We also ask that you provide the Committees of jurisdiction in both the House and
Senate the following:

    1. Funding Circle’s complete written application to become an SBLC licensee, including all
       attachments.
    2. How many instances an entity had been approved for an SBLC license that demonstrated
       a net operating loss in its financial statements at the time of application.
    3. Any documentation supplied by Funding Circle as part of its application regarding its
       plans to sell the SBLC license.
    4. Any communications between Funding Circle and the SBA after the company’s CEO
       stated on a March 23rd earnings call that they will not provide sufficient capital to get the
       U.S. operations fully functioning within the 7(a) program.
    5. The date upon which Funding Circle’s application was given the initial award for the
       SBLC license and the date at which point the complete application was submitted to
       SBA, including a copy of the signed SBA Form 750.


    6. The ranking and names of all other SBLC applicants that did not receive an SBLC license
       in the most recent application process.

5
 News Release, Funding Circle, Half Year 2023 Results (Sep. 7, 2023).
6
 Kathryn Gaw, Funding Circle to offload US business after losses widen, ALTERNATIVE CREDIT INVESTOR (Mar. 7,
2024).
   7. The voting records of all votes taken in the most recent application process by the five
      SBA personnel identified in SBA’s Rule titled, “Small Business Lending Company
      Application Process” (88 FR 32623) who make final determinations on SBLC
      applications.
        Until our concerns are alleviated and we are confident that the SBLC license will not put
the integrity of SBA’s flagship lending program at risk, the Administration should not allow
Funding Circle to enter the 7(a) program.

                                               Sincerely,




       ______________________________                       ______________________________
       Roger Williams                                       Joni K. Ernst
       Chairman                                             Ranking Member
       House Committee on Small Business                    Senate Committee on Small Business
                                                            And Entrepreneurship


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