ABA Statement for the Record Before the House Small Business Committee on the SBLC Rule

The American Bankers Association (ABA) appreciates the opportunity to provide a Statement for the Record for this hearing, Taking on More Risk: Examining the SBA's Changes to the 7(a) Lending Program Part II. ABA is the voice of the nation's $23.6 trillion banking industry, which is composed of small, regional and large banks that together employ more than 2 million people, safeguard $19.2 trillion in deposits and extend $12.2 trillion in loans.

On behalf of our member banks participating in the U.S. Small Business Administration (SBA) 7(a) loan program, we write to make you aware of our serious concerns regarding SBA's recently finalized rules: Affiliation and Lending Criteria for the SBA Business Loan Programs ("Affiliation Rule") and Small Business Lending Company (SBLC) Moratorium Rescission and Removal of the Requirement for a Loan Authorization ("SBLC Rule"). In the SBLC Rule, SBA lifted the moratorium on the number of nondepository institutions (called Small Business Lending Companies or SBLCs) that can make loans under the 7(a) program and to create a new type of SBLC called "Community Advantage SBLCs." SBA stated that the purpose for removing the moratorium is to expand capital opportunities for underserved businesses. In the Affiliation Rule, SBA loosened the 7(a) program’s requirements for how lenders underwrite loans and how borrowers may use loan funds.

Together, these major regulatory changes lay out a detrimental shift in the 7(a) lending program. Both final rules remove or modify long-existing prudent lending standards which have ensured programmatic integrity for decades. It is into this framework of loosened lending standards that the SBLC Rule also opens SBA’s flagship 7(a) program to a potentially unlimited number of SBLC lenders, including non-bank financial technology (fintech) companies, which would be regulated at the federal level solely by SBA. SBA’s stated intention for these sweeping changes is to aid traditionally underserved borrowers, a laudable goal that our association supports. However, as explained more fully below and in the comment we submitted in SBA’s rulemaking process,1 these changes may negatively impact the performance of loans made under the 7(a) Program, threaten the integrity of the program, and lead to increased borrower and lender fees. Consequently, the changes could unintentionally harm the very borrowers that SBA is trying to aid.

Download the statement for the record to read the full text.