SBA final rule removes ‘long-standing, prudent’ lending standards

The Small Business Administration finalized changes to its 7(a) and 504 loan programs, changes CUNA believes will ultimately harm the borrowers the SBA intends to aid.

The final rule lifts the moratorium on the number of small business lending companies (SBLCs) and adds a new classification, “Community Advantage SBLC.”

CUNA is very concerned with the lack of regulatory requirements for SBLCs, particularly since they would be primarily regulated by the SBA’s Office of Credit Risk Management (OCRM). Lenders have reported the OCRM is operating at maximum capacity without additional supervisory responsibilities.

“This final rule removes long-standing, existing prudent lending standards we believe will unintentionally harm the minority and underserved communities it is trying to help,” said CUNA President/CEO Jim Nussle. “New lending entities would not face the same regulation credit unions and other community lenders are subject to, and the removal of these guardrails gives us serious concerns that the changes will not have the positive impact intended."

Loans made through the 7(a) program are guaranteed (up to 85%) by the federal government, and the guaranteed portion of the loans do not count against a credit union’s member business lending cap.

CUNA wrote to SBA leadership and Congress in recent months calling for the proposals to be withdrawn, and will continue its engagement. The rule will become effective May 11.