Congressional Effort Underway to Reinstate the SBLC Moratorium

July 23, 2023 | By: Sean Murray

Capitol Building It only took 40 years for the SBA to lift the moratorium on licenses for Small Business Lending Companies. Now there’s a congressional effort underway to reinstate it. The “Community Advantage Loan Program Act” which had not been assigned its own individual bill number in the Senate at the time of this writing, nevertheless garnered 18-1 approval by the Senate’s Small Business and Entrepreneurship Committee last week.

First, the proposal concludes that the SBA does not have adequate resources to issue more than 3 new SBLC licenses. Second, it calls for a 5-year moratorium on new licensees having Delegated Authority which is the authority granted to a lender to process, close, service, and liquidate SBA loans without prior SBA review. Third, it imposes new annual stress tests that would enable the SBA to revoke the new licenses. All in all, it is effectively a rollback of the new SBA rules, and those are just some key components of it.

Senators Ben Cardin, D-Md. and Joni Ernst, R-Iowa, are the sponsors of the proposal.

Among the small business lending companies that would be impacted by this is Funding Circle. Ryan Metcalf, Head of U.S. Public Affairs at Funding Circle, told deBanked that “We estimate that the proposed Cardin/Ernst bill would reduce 7(a) Small Loans made by Funding Circle over the next three years by 26%, of which 33% is to SMB in LMI neighborhoods and 40% in rural areas.” That’s without considering the increased regulatory costs or the likely reduced borrower conversion rate as a result of having non-delegated authority, Metcalf added.

The initiative by Cardin and Ernst does not come as a surprise. The two had been critical of the the SBA’s plans to allow more SBLCs all along, arguing that new licensees were likely to be fintechs who were “the very entities responsible for issuing billions of dollars-worth of Paycheck Protection Program (PPP) fraud”

Last modified: July 23, 2023