NerdWallet: Big changes to small-business lending rules are meant to improve access to loans: What it means for business owners

by | Aug 31, 2023 | Stock Market

This article is reprinted by permission from NerdWallet.  The U.S. Small Business Administration and Consumer Financial Protection Bureau each issued new rules earlier this year that aim to expand funding access for small-business owners, especially those in underserved communities.

As of Aug. 1, 2023, updates to the SBA’s rules will allow for new, nonbank lenders to offer SBA 7(a) loans, as well as update restrictive lending criteria. And starting in 2024, the CFPB will begin requiring lenders to provide the public with transparent data on small-business owner loan applications. Here’s what this means for business owners.Additional nonbank SBA lenders Small business lending companies, or SBLCs, are nonbank institutions — such as financial technology companies and alternative lenders — that are authorized to fund SBA loans. SBLC licenses have been limited to 14 since the early 1980s, but the SBA has now added three additional licenses. The goal of this change is to encourage more lenders to offer SBA-backed loans and thereby reach more small-business owners. However, there are concerns that the SBA doesn’t have the capacity to properly regulate additional institutions, which may allow predatory lenders to enter the market, according to Ann Marie Mehlum, co-chair of the Bipartisan Policy Center’s Task Force on the Future of SBA and former associate administrator for capital access at the SBA. This could mean additional risks for small-business owners if predatory lenders are able to provide unfair or expensive loan products under the emblem of the SBA, says Joshua Miller, vice president of research and policy at Accion Opportunity Fund, a nonprofit community development financial institution based in California. He recommends borrowers be “leery” of working with any small-business lender that won’t provide an annual percentage rate, as predatory lenders often try to hide the true cost of borrowing behind something like a factor rate. The SBA will also issue a new type of license called the Community Advantage SBLC to participants in the pilot Community Advantage program, as well as new nonprofit organizations. These licenses will represent a permanent continuation of the CA program, which has backed nondepository, mission-based lenders that target underserved communities, and that was p …

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