The Small Business Administration (SBA) updated its lending rules, effective August 1today. The changes are intended to streamline the loan application process and allow more nonbank lenders to service SBA loans, moves which the SBA says will increase access to its loans.
“The ongoing modernization of SBA’s loan programs will help ensure more borrowers can get funded through a broader network of lenders so they can help build a strengthened American economy that innovates, manufactures, and provides the products and services that make our lives better across Main Street,” SBA Administrator Isabella Casillas Guzman said after the changes were finalized.
Some lawmakers and industry insiders have criticized the changes, the Wall Street Journal reported, claiming that they could increase the risk of loan defaults and open the door for fintechs, which aren’t as closely supervised as banks, to make risky loans.
Previously, the government set guidelines for which borrowers could receive loans. Under the new rules, lenders can make those decisions based on their existing policies for loans up to $500,000. Other changes will simplify processes for loans of $150,000 or less.
The SBA will also perform fraud reviews on applicants, a task that had formerly been lenders’ responsibility. And borrowers will now be able to obtain loans for partial ownership of a small business.
The new rules will also enable the SBA to grant more Small Business Lending Company (SBLC) licenses, which allow nonbank lenders, such as fintechs, to provide SBA loans. For 40 years, the number of SBLC licenses had been capped at 14.
News built for finance pros
CFO Brew helps finance pros navigate their roles with insights into risk management, compliance, and strategy through our newsletter, virtual events, and digital guides.