SBA to Begin Lending Program Opposed by Members of Congress, CU Trades

The Small Business Administration will begin a lending program criticized by credit union trade groups, who have cited concerns over fraud. Learn why.

David Baumann


Apr 14



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David Baumann

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David Baumann

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Proposal has been questioned by CUNA, NAFCU and banking groups citing potential for fraud.

The Small Business Administration announced this week that it will allow up to three non-depository lending institutions to participate in its most popular loan program—a proposal opposed by many financial trade groups and members of both parties on Capitol Hill.

“SBA believes that increasing the number of nontraditional lenders will result in the expansion of business opportunities and the creation of more jobs in underserved communities,” the administration said, in issuing a final rule governing its 7(a)-loan program.

However, citing reports of fraud in the pandemic Paycheck Protection Program (PPP)—particularly by fintech companies—critics questioned whether the SBA can effectively oversee nontraditional lenders.

Response From CU Group

Citing those problems, NAFCU President/CEO B. Dan Berger revealed his concern about the SBA moving ahead on the expansion.

“NAFCU is disappointed to see the SBA ignoring the concerns raised by our members and more than 100 other stakeholders in its final SBLC [Small Business Lending Company] rule,” Berger said.


The SBA has had a moratorium on issuing SBLC licenses; that moratorium is being lifted effective May 12.

In announcing the final rule, the SBA acknowledged that many commenters opposed the plan when it was first presented. The agency explained it received 106 comments on the proposal, with 13 commenters in support and 106 in opposition.

Some opponents said that licensing additional SBLCs will increase risk to the agency that could result in higher fees for traditional lenders if a company does not follow program guidelines.

Agency officials said SBLCs are non-depository lending institutions, and that they are not synonymous with fintechs.

Further attempting to assuage critics, the SBA noted it has conducted an in-depth assessment to ensure that it has the capacity to provide the necessary oversight to the three new SBLCs.

Concerns in Congress

As the administration was considering the final rule, the chairman and ranking Republican on the Senate Small Business Committee attacked the plan.

“The sweeping changes...would substantially overhaul SBA’s lending programs by permitting new program participants and changing the current guardrails of the programs, something that comes dangerously close to authorizing through the regulatory process,” Chairman Ben Cardin, D-Md., and ranking Republican Joni Ernst, R-Iowa, wrote in a March letter to SBA Director Isabella Guzman. “Let us be clear, Congress has not authorized any loosening of prudent underwriting or affiliation standards.”

After the final rules were issued on Wednesday, Cardin did say he was pleased the agency was making an effort to provide additional capital to small businesses.

“While I have concerns with some of these changes, I know we have a shared commitment to filling gaps in capital markets for underserved communities,” he said. “There is no question that improvements can be made to SBA’s lending programs to allow them to assist more businesses in these communities.”

Additional Questions Raised

Two other Democrats also cited their concern about the SBA’s ability to police financial institutions.

In a letter to Guzman, Illinois Democratic Sens. Richard Durbin and Tammy Duckworth said that prior to expanding the SBLC program, agency officials should address the issues of fraud and abuse in the PPP program.

“Before the SBA allows additional lenders, specifically fintechs, to participate in the 7(a) Loan Program, the SBA must have sufficient safeguards in place to ensure fintechs and other lenders are not facilitating excessive rates of fraud and abuse,” they wrote.

In January, Democrats on a House subcommittee issued a report concerning fraud in the PPP program.

“While the PPP delivered vital relief to millions of eligible small businesses, at least tens of billions of dollars in PPP funds were likely disbursed to ineligible or fraudulent applicants, often with the involvement of fintechs, causing tremendous harm to taxpayers,” the Democratic staff of the House Select Subcommittee on the Coronavirus Crisis stated in a report.

Financial Trades Aligned in Opposition

That report followed a letter by financial trade groups—including NAFCU, CUNA, the American Bankers Association and the Independent Community Bankers of America—contending that the SBA does not have the capacity to police otherwise unregulated lenders.

“We believe that SBA’s Office of Credit Risk Management (OCRM) lacks the resources to take on additional supervisory responsibility,” they wrote, in commenting on the proposal. Further, they accused the SBA of acting rashly by allowing an increase in the number of SBLCs before law enforcement agencies complete their probe into the PPP program.

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