Funding Circle (LSE: FCH), the online platform for small business loans, announced that we have received a formal notice from the US Small Business Administration (SBA) that their application has “resulted in a tentative award for an SBA Small Business Lending Company (SBLC) license to participate in its flagship 7(a) small business loan program.”
The SBA’s decision to “grant Funding Circle one of the first SBLC licenses since 1982 is part of the Biden-Harris Administration’s efforts to modernize the agency and address persistent gaps in access to capital impacting small business owners and to grow the economy.”
The announcement follows recent research “published by the Philadelphia Federal Reserve and Bank for International Settlements” that found Funding Circle is “increasing access to capital at a lower cost for borrowers who are less likely to receive credit from traditional banks” and “predicting future loan performance more accurately than the conventional method to credit scoring, leading to better loan performance”.
Steve Allocca, Managing Director at Funding Circle U.S., said:
“We are excited to help more small businesses in the U.S. get the funding they need to win. By leveraging our advanced data and technology platform and providing a superior customer experience, Funding Circle is well positioned to become the #1 SBA lender in the country for 7(a) Small Loans under $500,000 by providing creditworthy small businesses in low-moderate income neighborhoods and rural areas access to affordable capital to start, run and grow their businesses.”
More than 50% of banks have “imposed stricter lending criteria on small businesses with half of entrepreneurs seeking credit encountering funding shortfalls or receiving the full amount sought.”
This credit crunch disproportionately “affects minority-owned enterprises, with 51% of Black-owned, 40% of Hispanic-owned, 36% of Asian-owned, and 30% of White-owned businesses experiencing financial hurdles due to limited credit availability.”
The SBA 7(a) program, which guarantees “up to $36 billion a year in small business loans up to $5 million, currently sees participation from relatively few of the 11,000 banks and credit unions in the United States. 25 lenders are responsible for 50% of all 7(a) loans, averaging around half a million dollars—neglecting the crucial need for smaller loans to small and underserved businesses. 77% of Funding Circle loans are for less than $150,000, 33% go to businesses in low-moderate income neighborhoods and 40% to businesses in rural areas.”
By expanding lender participation and streamlining the program requirements under $500,000 to “leverage technology and more closely mirror the private sector’s policies and procedures, the SBA is making it more efficient to get more small loans in the hands of small and underserved small businesses.”
Funding Circle will begin “offering SBA 7(a) Small Loans in 2024. Small businesses seeking financing up to $500,000 can visit www.fundingcircle.com to apply online in a matter of minutes.”