A Small Business Lending Company (SBLC) is rare in the world of small business lending. What are SBLCs, and why are they impactful partners for small business owners?
An Uncommon SBA Lender
A Small Business Lending Company (SBLC) is a lender that has received a certification from the SBA to offer 7(a) loans in all 50 states. An SBLC must be a non-depository financial institution, or in other words, a lender that is not a bank.
SBLCs are few and far between. In January of 1982, the SBA decided that only 14 SBLC licenses can be in use at the same time. This meant a new SBLC was only created when another SBLC relinquished its license, allowing it to change hands. Often, many years or even decades passed before a new SBLC entered the market. In 2023, the SBA lifted the limit of 14 SBLCs and began granting new licenses sparingly to expand businesses’ access to capital.
The process of becoming an SBLC is not fast or easy, but it’s worth it for lenders who want to provide SBA loans to small businesses through their growth stages and beyond.
Credit unions and institutions that accept deposits, savings, and loans, such as banks, can be certified to offer 7(a) loans, too, but they’re not SBLCs. Only a non-depository lender can become a licensed SBLC.
To qualify as an SBA 7(a) lender, a company must:
- Show that it can complete all the steps of small business lending long-term and in a high-quality way
- Issue small business loans based on requirements outlined by the SBA
- Meet and maintain strict ethical requirements set by the SBA
- Be in good standing with federal or state examiners
Benefits of a Non-Bank Lender
Small business owners often prefer non-bank lenders for their flexibility, transparency, lower rates and fees, and more efficient processing times. Undercapitalized small business owners who don’t have relationships with banks also usually prefer non-bank lenders.
Benefits of the SBA 7(a) Program
SBA loans are designed to help small business owners who aren’t ready or don’t yet qualify for traditional loans. Some advantages are:
- Lower rates and longer terms
- Relaxed credit requirements, like less need for collateral
- Loans are funded by the lender and partially backed by federal guaranty
The U.S. Small Business Administration has several SBA lending programs, including: the 7(a) Program, the 504 Program, and Export Loan Programs. Each program has different rules about which kind of lenders can offer them, what amounts can be loaned, and how small business owners can use the funds.
The 7(a) program offers loan sizes up to $5 million and as low as $1,000. Funds can be used for many purposes, like equipment purchases, renovations and expansions, working capital, acquiring a business, refinancing certain kinds of debt, and purchasing commercial real estate.
Most SBA 7(a) loans of $150,000 or less are guaranteed up to 85% by the federal government. Loans above this amount are guaranteed up to 75%. This means SBA lenders are more likely to lend to a promising business owner with a lower credit score, little collateral, or less extensive credit history who is less likely to be approved by non-SBA lenders.
7(a) loans make it possible for small businesses to grow, become employers, and graduate to traditional financing in larger amounts. Even though SBLCs are rare, they are impactful partners that help small businesses thrive and serve their communities.