WASHINGTON—The Small Business Administration (SBA) has issued its final rule to change regulations governing SBA's 7(a) and 504 Loan Programs related to lending criteria, loan conditions, affiliation standards, and more.
The SBA said the changes are “to encourage and facilitate more lenders to make small dollar loans.”
In response, NAFCU said it agreed the proposed rule would reduce costs and burdens on credit union SBA lenders, but also said it has concerns over “loosening guardrails for non-depository lenders that lack a prudential regulator – potentially increasing risks to the loan programs and creating an uneven playing field between credit unions and fintechs.”
NAFCU has requested the SBA pause this and another related rulemaking on Small Business Lending Companies (SBLCs) to “better understand” the rules' separate and collective impacts.
The Provisions
The final rule includes provisions that would, among other things:
- Require lenders to underwrite SBA loans using the same credit analysis processes and procedures used for their similarly sized, non-SBA guaranteed commercial loans
- Increase the threshold for 7(a) and 504 loans requiring hazard insurance on collateral to loans greater than $500,000 – a significant increase from the proposed rule threshold of $150,000
- Allow borrowers to use 7(a) loan proceeds to purchase a portion of a business or an entire business, which was previously prohibited
- Provide the director of the Office of Financial Assistance with the authority to delegate decision making related to reconsideration after denial of a loan application or loan modification to designees, and also allows the SBA Administrator to make the final agency decision on reconsideration.
The final rule takes effect May 11.
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