Sofia Gilkeson, Public Policy Associate, Opportunity Finance Network
Final SBA rule provides permanent pathway for Community Advantage lenders to participate in 7(a) program but leaves out key details
The Small Business Administration (SBA) released its final rule on April 12 for lifting the moratorium on issuing new Small Business Lending Company (SBLC) licenses required for its 7(a) Loan Program. The moratorium had been in place since 1982, limiting the number of non-depository lending institutions participating in the 7(a) Loan Program to 14 organizations. The SBA plans to issue three new licenses this year.
The final rule comes after the SBA released a proposed rule in November 2022. OFN submitted a comment letter advocating for responsible business lending practices, transparency, and less burdensome requirements for mission lenders participating in the Community Advantage pilot program. OFN’s comments also asked for clarity about the future of the Community Advantage program, which was extended through 2024 but is not a permanent program.
In response, the rule creates a new type of mission-based SBLC called a Community Advantage SBLC. While this new SBLC provides a permanent pathway for Community Advantage lenders to participate in the 7(a) program, key details are missing from the rule.
For example, although SBA states Community Advantage SBLCs will continue to commit resources to reaching communities with capital market gaps, the rule does not define what is considered a community with capital market gaps. The rule also requires Community Advantage SBLCs to maintain a minimum amount of capital and a loan loss reserve account but does not state what capital those requirements are or the appropriate amount of a loan loss reserve.
These details will be decided at the discretion of the SBA’s administrator, in consultation with SBA’s associate administrator for the Office of Capital Access or their designee(s). SBA does state they will examine each lender applicant on an individual basis to determine the capital requirements best suited to minimize risk while not burdening smaller lenders with unnecessarily large capital requirements.
Notably, the rule also does not adopt any responsible business lending requirements for SBLCs.
The final rule will go into effect May 12, 2023. OFN will continue to advocate for SBA to adopt policies that support mission lenders and the communities that we serve.
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