The Small Business Administration on Wednesday announced that it approved Funding Circle’s application to participate in the SBA’s flagship lending program, marking a significant milestone for the London-based firm, which has long been lobbying for access to the government lending vehicle.
Funding Circle joins Arkansas Capital Corp. and Alaska Growth Capital BIDCO as the first nondepository institutions to be granted new Small Business Lending Company licenses in 40 years, following the SBA’s decision this year to end a moratorium on granting new licenses.
In order to become an SBLC under the former regulations, an entity had to acquire one of the existing licenses from an entity exiting the 7(a) loan program.
With the addition of the three new SBLC licenses, the program’s nonbank lenders have expanded from 14 to 17.
“Persistent barriers to capital, especially small dollar loans, still pose a challenge to many of the entrepreneurs who power our economy,” SBA Administrator Isabel Guzman said in a statement on Wednesday. “The Biden-Harris Administration remains committed to filling capital market gaps — and the expansion of the SBA’s SBLC program after more than forty years is a monumental step forward in this crucial effort. With the addition of three new Small Business License Companies, the SBA will be able to serve even more small business owners who need capital to start, operate, and grow their businesses.”
The license comes amid a transformational year for the U.S. operations for Funding Circle, which has long lobbied
for access to the government lending program.
The firm named Steve Allocca its new U.S. managing director in January, and in August became operational in all 50 states and Washington, D.C., with the addition of Nevada.
The fintech has also backed efforts to streamline the SBA’s 7(a) program, making it more cost-effective for lenders like Funding Circle who make smaller loans.
In addition to expanding the 7(a) program, the SBA this year simplified its loan requirements and allowed more automation in the process.
“The changes that the SBA has made with this program, I think, have the potential to completely transform small-business lending in America,” Allocca said.“I think it's pretty profound.”
Funding Circle’s core demographic is small businesses looking for loans of up to $500,000, said Allocca, a banking and fintech veteran, who has held roles at Wells Fargo, PayPal, LendingClub and was most recently the chief operating officer of Bluevine.
“If that same small business wanted to borrow traditionally, whether it's through a bank, directly, or an SBA loan, either through a bank or an SBLC, speed and ease and a great digital experience are not typically hallmarks of what they would expect in that experience,” he said. “What the SBA has done with this program is it has brought together the best of both worlds. It enables us to be able to bring that same speed and simplicity and a great digital experience with the incredible SBA product.”
While Funding Circle has notched several wins this year, the firm, like many other banks and fintechs, is navigating a challenging lending environment brought on by high interest rates.
“[High interest rates] certainly have a dampening effect on lending in general, but particularly, for Funding Circle’s sweetspot, which is more established, prime, creditworthy businesses,” Allocca said.
Allocca said he is leaning on “responsible growth” to unlock the firm’s “untapped potential” amid the challenging market.
“We’ve seen a consistent increase in demand for loan applications, substantially a 54% increase in completed applications year-over-year,” he said. “Even though, just like everybody else, we’ve had to be careful about our credit strategy and tighten appropriately, given the stress in the economy, we’ve still seen more than 35% year-over-year growth in funded loan volume even in this environment. It just speaks not only to the opportunity that we were able to realize so far this year, but more importantly, the opportunity in front of us to continue that growth.”