Republican leadership of both the House and Senate Small Business committees have called on Administrator Isabel Casillas Guzman to walk back Funding Circle's recent admission to the Small Business Administration's $35 billion 7(a) loan guarantee program.
The move adds to the groundswell of criticism that's followed CEO Lisa Jacobs' surprise announcement last month that the London-based Funding Circle intends to shift emphasis to more profitable United Kingdom-based business lines and may consider selling its U.S. operation.
Williams' and Ernst's letter comes three weeks after Sen. Jeanne Shaheen, D-New Hampshire, questioned the wisdom of licensing Funding Circle in a letter to Guzman.
Funding Circle
The SBA's SBLC expansion
"The moment the company's own CEO publicly questioned the viability of their U.S. operations should have been enough of a red flag to stop the SBA's licensing process from moving forward," Williams said in a statement to American Banker. "Unfortunately, the SBA ignored these warnings, and if Funding Circle continues to offer loans to businesses that cannot pay them back, the American taxpayers will be left paying the bill."
"SBA's recklessness with taxpayer dollars is unmatched," Ernst said in a statement. "SBA failed to do proper due diligence on Funding Circle, and Americans are paying the price. It's past time for the SBA to rein in its misguided lending rules and revoke Funding Circle's license."
In a statement to American Banker, an SBA spokeswoman didn't directly mention Funding Circle but defended the overall expansion of the SBLC program and the initial selection process.
"After a monthslong process and meeting all legal requirements, all three lenders announced last November were successfully onboarded this spring, and we look forward to working with them and all lenders to help small businesses access the resources they need to thrive," SBA's Rebecca Galanti said.
Ryan Metcalf, Funding Circle US' head of public affairs, said the company respects oversight role of House and Senate Small Business Committees, but added "the accusations and misrepresentations made about Funding Circle are simply not supported by the facts."
"We look forward to the opportunity to correct the record and continue our mission to help small businesses get access to the capital they need to win," Metcalf said.
Funding Circle reported losing approximately $5 million in 2023 before interest, taxes, depreciation and amortization, after reporting a profit in 2022. According to Jacobs, the firm's U.K. businesses offer a quicker path to returned profitability. Jacobs added that Funding Circle has received "expressions of interest" in its 11-year-old U.S. business, which is headquartered in Denver.
In their letter, Williams and Ernst noted Funding Circle had demonstrated signs of weakness before it released its full-year 2023 results in March. Indeed, the company
"Clearly, these issues are not new," Williams and Ernst wrote. "It is deeply concerning that the SBA is doubling down on awarding an SBLC license to a company that has been, and continues to be, in such a weak financial position."
Guzman and SBA proposed lifting the SBLC moratorium in 2022. The policy was aimed at addressing market gaps that have prevented small businesses, many veteran- and minority-owned, from obtaining capital. Following approval of the final SBLC rule in April 2023, SBA granted licenses to Arkansas Capital Corp., McKinley Alaska Growth Capital and finally to Funding Circle. The rule sets no restrictions on the number of SBLCs, though the agency plans to limit the number of new licenses to three until it is able to expand its supervisory capacity. Supervision of bank and credit union lenders is largely handled by their primary regulators.
Both Williams and Ernst said they support limiting the growth of the SBLC program until what they termed prudent underwriting standards and proper safeguards can be returned.
Earlier this year, as part of the Biden administration's budget plan for fiscal 2025, SBA revived its push for direct lending authority, again to address market gaps and increase the number of small-dollar 7(a) loans available to startup entrepreneurs. SBA unveiled a direct-lending proposal in 2022, but it was stymied by strong opposition by banks and credit unions. Debate is ongoing and private-sector lenders have renewed their objections to any direct-lending activity by SBA.
The 7(a) program is SBA's largest. As currently configured, participating private sector lenders can make loans up to $5 million which are guaranteed up to 85% by SBA.
