Small Business Administration to Expand 7(a) Program to Fintechs and Alternative Lenders | Ballard Spahr LLP

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The Biden Administration recently announced a list of new public and private sector initiatives aimed at advancing racial equity by providing “capital and resources to underserved small businesses and the community lenders that serve them.” Among those initiatives was a proposed rule change for the Small Business Administration (SBA) that would increase the number of non-banks, including fintechs, eligible to offer SBA 7(a) loans.

This proposed rule change coincides with the 2021 bipartisan legislation”Expanding access to credit for small businessesproposed by Senators Tim Scott (R-SC) and John Hickenlooper (D-CO) who similarly sought to allow fintech and alternative lending companies to participate in the 7(a) program. The current list of nonbanks eligible to offer 7(a) loans under the SBA’s $35 billion annual program has been limited to 14 since 1982.

SBA 7(a) loans are available for up to $5 million in principal amount and are backed by a 75% to 85% SBA guarantee. These proposed changes to SBA rules will allow non-bank lenders to apply for a license to offer these SBA-backed 7(a) small business loans. No timeline for the new SBA rules has been set.

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