SBA Lifting Moratorium on Licensing Lending Companies

Non-federally chartered banks will soon be able to make Small Business Administration (SBA) loans.

Effective May 12, the agency is lifting the moratorium on licensing new Small Business Lending Companies (SBLCs), adding a new type of lending entity called a Community Advantage SBLC and removing the requirement for a loan authorization in the 7(a) and 504 loan programs, according to a final rule published Wednesday (April 12) in the Federal Register.

The 7(a) loan program provides SBA-guaranteed loans to small businesses.

The number of SBLC licenses has remained unchanged at 14 since 1982, so the only way for a new lender to enter the program was to acquire a license from one that was leaving the program, according to the entry in the Federal Register.

A Community Advantage pilot program launched in 2011 allowed organizations that met the definition of an SBLC but did not have a license to provide loans in underserved markets. This program was recently extended to Sept. 30, the entry said

The new lending entity called Community Advantage SBLCs will be nonprofit organizations licensed to make 7(a) loans, per the entry.

“SBA has determined that certain markets where there are capital market gaps continue to struggle to obtain financing on non-predatory terms,” the SBA said in the Federal Register. “Therefore, SBA is lifting the moratorium on licensing new Small Business Lending Companies (SBLC) and creating a new type of SBLC to help bridge this financing gap.”

This change comes at a time when three-quarters of Main Street businesses report they would run out of cash within 60 days.

Only 26% of small to medium-sized businesses (SMBs) with brick-and-mortar shops in commercial districts have access to enough funding to stay open for more than 60 days in the event of a cash flow shortfall, according to “Main Street Health Q1 2023: Using Finance to Ease Recession Fears,” a PYMNTS and Enigma collaboration.

The report also found that 59% of Main Street businesses believe there will be a recession in the next year and that there is a large and, as yet, unmet need for financing options to help defend against potential cash shortfalls.

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