The Small Business Administration (SBA) is looking to expand its lending network to include financial technology companies (fintech) and other nontraditional lenders to increase access to its guaranteed loan programs.
The White House announced last Tuesday that the SBA will propose a rule to expand its lender base by lifting the moratorium on new Small Business Lending Companies, which would allow new lenders to apply for a license to offer SBA-backed 7(a) small business loans.
“The SBA’s objective for this policy change is to grow the number of lenders that receive its loan guarantee, thus increasing small business lending, particularly in smaller-dollar and underserved markets, where borrowers are most acutely shut out of current lending,” the White House stated.
Expanding licenses to fintech and nonbank lenders gained traction following statements earlier this year by SBA Administrator Isabel Guzman about being open to increasing its lending network.
The move could see support in Congress, where some legislators have been trying to grow the SBA’s lender base.
A bipartisan group of lawmakers previously introduced the Expanding Access to Credit for Small Business Act. The Act included a provision to expand the 7(a) program at the SBA to include more fintech startups and companies.
Fintech lending platforms use alternate data to reach business owners who usually would not be able to work with a traditional lender, according to a report by the Bank for International Settlements (BIS) and another by the Federal Reserve Bank of Philadelphia.
Additionally, at least according to the latter, “‘fintech platforms’ internal credit scores were able to predict future loan performance more accurately than the traditional approach to credit scoring.”
Ryan Metcalf, head of public policy and social impact at the commercial lending firm Funding Circle US, applauded the bipartisan effort “to help expand access to capital for America’s smallest and underserved businesses.”