SBA approves new wave of SBLC 7(a) lenders

The Small Business Administration has awarded four new small business lending company licenses, allowing more nondepository financial institutions to make federally backed loans.

The move has been championed by SBA Administrator Isabel Casillas Guzman as part of a broader effort to make capital more accessible to underserved groups and communities. But critics say adding SBLC licenses could inject more risk and ultimately lead to greater loan losses.

“With private markets playing an increasingly important role in small business lending, this expansion delivers against the Biden-Harris Administration’s unwavering commitment to providing affordable financing to the incredible entrepreneurs and new business starts revitalizing Main Streets across America,” Guzman said in a press release Monday.

A10 Capital in Boise, Idaho; Cooperative Business Services in Cincinnati; Lafayette Square in Miami; and Stonehenge Capital in Baton Rouge, Louisiana, can now participate in the SBA’s primary lending program. The 7(a) program guaranteed more than $31 billion in small-business loans in the 12 months ended Sept. 30 and is on pace to exceed that total in SBA’s 2025 fiscal year. 

“Small businesses are the backbone of the U.S. economy and we are eager to quickly launch operations,” A10 Capital CEO Anuj Gupta said in the release. “We look forward to applying our decades of knowledge, expertise and experience to provide lending solutions to small businesses nationwide.”

For decades, the SBA had arbitrarily capped the number of nondepository 7(a) lenders at 14, a move that was supported by banks and credit unions. In April 2023, the SBA removed the cap. Three SBLCs were initially approved, followed by a pause. SBA announced plans to reopen the application window for new SBLC licenses in August. 

Since the rule change, lawmakers have pushed back. Sens. Ben Cardin, D-Md., and Sen. Joni Ernst, R-Iowa, introduced legislation in July 2023 to restore the cap, but the bill failed to advance out of committee. 

A spokesman for Ernst, who will chair the Small Business and Entrepreneurship Committee when the 119th Congress convenes in January, did not respond to a request for comment.

Unlike banks and credit unions, SBLCs do not have a primary federal or state regulator. They are supervised directly by the SBA, which doesn’t have the same expansive regulatory capacity as the banking agencies. 

The SBA, however, said its lender oversight efforts have exceeded 2024 review targets, with officials conducting “thousands of reviews, including site visits and lender trainings.”

Critics also have expressed concern about the potential for fraud. They point to reports from the SBA’s inspector general and a House select committee that revealed fintech lenders as a source of fraud in the Paycheck Protection Program. For their part, the SBA and fintech advocates say the PPP bad actors have been identified and blocked from future 7(a) participation. 

At the same time, problem 7(a) loans appear to be on the increase, with agency purchases of defaulted loans jumping significantly in fiscal 2024, which ended Sept. 30.

Guzman has pressed forward with her SBLC policy despite the pushback. She is expected to leave her post when President-elect Donald Trump takes office. Trump has nominated former Georgia Sen. Kelly Loeffler to serve as SBA administrator. 

It’s unclear if the Trump administration will roll back the SBLC expansion.