• The Small Business Administration (SBA) doesn’t directly give out loans but instead works with certified lenders that offer loans through its programs.
• The Expanding Access to Credit for Small Businesses Act is a proposed law that’s purpose is to open up the requirements on who can become an SBA-certified lender.
• Non-bank lenders like fintech companies could become a lender through the SBA once the law is passed.
• These changes will open up access to credit for small business owners.
• Learn the details of the act, how it will change the SBA 7(a) program, and how small businesses will benefit from the changes.

What Is the Expanding Access to Credit for Small Businesses Act?

The Expanding Access to Credit for Small Businesses Act is a straightforward proposed law that would do just what its name suggests — broaden access to credit for small businesses. It’s a bipartisan legislation introduced in August 2021 by Senators Tim Scott and John Hickenlooper that would allow new lenders to participate in the Small Business Administration’s 7(a) program. The act gets rid of a 40-year-old ban on distributing new Small Business Lending Company licenses. These changes would mean that new lenders — including fintech companies — would be able to offer 7(a) loans backed by the SBA.

In other words, the act plans to loosen up the requirements to become an SBA-certified 7(a) loan provider. The 7(a) loan program is one of the most popular options from the SBA, and fintech lenders can’t currently offer 7(a) loans. In November 2022, the Biden Administration submitted a notice that they plan to follow through with the act, so it looks like it will become a law that will benefit small business owners.

How Will the Act Change the SBA 7(a) Loan Program?

The rules on who is allowed to become an SBA-certified lender for 7(a) loans would shift under the act. With a 7(a) loan, borrowers can get between $50,000 and $5 million to use toward launching, expanding, or running a business. The SBA guarantees at most 75% or 85% of the loan from its partner lenders (the max percentage depends on the amount you borrow). This guarantee means that the government will cover a predetermined portion of the loan if the borrower can’t pay, lowering the risk for lenders.

According to the SBA, current certified lenders can be “banks, savings and loans, credit unions, and other specialized lenders.” The new act would open it up to new lenders like fintech companies and Community Development Financial Institutions (CDFIs).

How This Act Can Help Small Businesses

This act expands small business owners’ access to funding. Because SBA 7(a) loans are backed by the government, it is less risky for lenders to offer them. Because of the lowered risk, lenders are usually more willing to offer SBA-backed loans to small business owners who may not qualify for other financing.

Additionally, research shows that fintech lenders have already helped underserved small businesses by:

• Giving out loans in areas with higher unemployment and more business bankruptcies than other lenders.
• Better predicting how likely a borrower is to pay back a loan than by using a credit score alone.

Isabel Guzman, the Small Business Administrator, said, “The adoption of fintech across the banking sector as well as with these new fintech companies and our CDFIs is really critical and expanding distribution for capital will improve access.” Combining the power of fintech with the security of the SBA will only increase small business owners’ access to credit further.

How Nav Can Help You Get Business Credit

Once the act becomes law, SBA 7(a) loans will likely become easier to access through alternative lenders. Borrowers will often find some of the best rates and terms using 7(a) loans, so better access could be transformative for many small businesses. 

In the meantime, the first step to getting small business financing is to understand your best options that are currently available. Enter your business details on Nav to see the options you’re most likely to qualify for. The more information you enter, the more accurate your results will be.