Small Business Center
A little-noticed detail in a government news release raises the possibility that fintech firms and other alternative, nonbank lenders can apply to offer Small Business Administration-backed 7(a) loans, ending a 40-year government lock on new small business lending companies.
The popular 7(a) program offers small businesses working capital for as much as $5 million, to be repaid over terms of 7 to 25 years. The SBA’s 2023 budget sought an additional $5 billion for the program, for a total of $35 billion. The proposed rule change would widen eligibility to new lenders, which could increase the number of qualified lenders in the total 7(a) pool. That could possibly lower the average loan amounts, as well.
Inc.’s Diana Ransom said several fintech companies — including Kabbage, PayPal and Funding Circle — did not comment on the possible change. If the rule change is enacted, which could take up to a year, it would increase the number of lenders that receive SBA loan guarantees, which typically range from 75% to 85%, depending on the program and the size of the loan. The main beneficiaries would be small businesses in underserved markets and smaller-dollar borrowers.
By Will Swarts
Executive Editor, ICSC Small Business Center