Small-Business Lending Is About to Change, With Simpler Requirements

livemint.com:

The federal program for small-business lending is undergoing its biggest makeover in decades. The Small Business Administration is simplifying loan requirements, automating more of the process and expanding the pool of nonbank lenders licensed to issue SBA loans. The moves, many of which take effect Aug.

1, will make it easier for financial-technology firms to participate. SBA officials say they want to boost credit to small businesses that have struggled to get financing as banks favored bigger commercial borrowers. But the changes—and the decision to couple relaxed requirements with new lenders—have drawn criticism from the industry and members of Congress, who say the revisions could jeopardize the program by increasing loan defaults.

“These are the most sweeping changes I have seen in my 40-year career," said Tony Wilkinson, chief executive of the National Association of Government Guaranteed Lenders, a trade group for current SBA lenders. One of lenders’ most important jobs is to say no when it is appropriate, he added, rather than give small-business owners loans they can’t repay. “Our system is not broken," Wilkinson said.

“I don’t know what they are trying to fix." Legislation sponsored by Senate Small Business Committee Chairman Ben Cardin (D., Md.) and co-sponsored by ranking member Joni Ernst (R., Iowa) would direct the SBA to conduct annual stress tests of licensed small-business lending companies, which aren’t overseen by federal banking regulators, and add guardrails and speed bumps to the processing of loans by new nonbank licensees. The legislation would also make permanent a pilot program aimed at helping underserved borrowers secure small-dollar loans. SBA loans are a crucial source of financing for