Ethan Smith, a lawyer who represents SBA lenders, described the changes as “vast and sweeping.”

The Small Business Administration (SBA) is making significant changes to its federal program for small-business lending, the most extensive overhaul in decades. The reforms, effective August 1, aim to simplify loan requirements, automate processes, and expand the pool of nonbank lenders authorized to issue SBA loans, particularly benefiting financial-technology firms.

SBA officials seek to increase credit accessibility for small businesses that have struggled to secure financing, but the changes have faced criticism from the industry and lawmakers. Critics fear that the coupling of relaxed requirements with new lenders could lead to increased loan defaults, potentially jeopardizing the program. (WSJ)

The new rules allow lenders to use their own credit policies to issue SBA loans up to $500,000, instead of following government guidelines. Some changes make it easier for entrepreneurs to qualify for financing, such as giving more weight to profit forecasts for younger businesses and reducing down-payment requirements. However, concerns remain about the lack of firm guardrails for lenders, potentially leading to imprudent loans.

Additionally, the changes may result in higher costs for small-business owners due to increased fees on loans. The decision to add new fintech and nonbank lenders has also raised concerns about oversight and potential risks associated with riskier loans.

While the SBA believes these changes won’t significantly impact loan performance, their success may depend on how SBA lenders embrace the looser guidelines and whether lenders trust that the SBA will honor guarantees on loans made under the new requirements.

Last year, lenders issued only $26 billion of loans against the amount of $34 billion authorized by Congress for SBA loan guarantees annually. A senior official pointed to the underutilized amount of $8 billion and remarked that many small businesses complain about their inability to obtain loans.

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