A fintech community development financial institution that has been active in the Small Business Administration’s Paycheck Protection and Community Advantage programs has secured a license that allows it to participate in the agency’s flagship $35 billion 7(a) loan guarantee program.
Only 14 nondepository lenders are permitted to participate in 7(a). In obtaining one of the limited number of licenses, the Los Angeles-based Lendistry became the nation’s first African American-led small-business lending company. The 7(a) program is SBA’s oldest and largest. It offers loan guarantees of up to 85% on loans up to $5 million.
Lendistry, which was founded in 2015 and says it has helped close to 600,000 small businesses receive loans totaling $8.5 billion, acquired its license from Hana Financial, which exited SBA lending in 2018,
While Lendistry made $4.7 billion of Paycheck Protection Program loans in 2021, after PPP
“There’s still a gap” to be filled between microlenders and CDFIs that serve early-stage small businesses and conventional 7(a) lenders who target mature, successful companies, Sands said. “Some people need $400,000, they need $500,000. … We want to help build that roadmap to success for small-business owners.”
The SBA launched Community Advantage in 2011 to provide better access to capital for underserved small businesses. Lendistry was an active participant for much of its seven-year history. Last month, the SBA
Sands, who had called for a program extension and a higher loan ceiling in testimony before the House Small Business and Entrepreneurship Committee in May 2021, endorsed the SBA’s actions. “I’m very supportive of those changes and I was very happy to see them,” he said.
Ironically, Lendistry won’t be able to take advantage of the new rules. Though Lendistry would “love to be in both,” programs, Sands said, SBA regulations don’t permit simultaneous participation.
Now, Sands said he also hopes Lendistry can boost the regular 7(a) program’s lending to women, minorities and veterans. Through nearly seven months of the federal government’s 2022 fiscal year, businesses where women controlled a majority stake received 15% of the 7(a) program's $12.3 billion in lending volume. Black-owned businesses received 4%; veterans received 3%. “I’d like to see all of those percentages go up significantly,” Sands said.
Lendistry’s blueprint for building a book of business big enough to achieve Sands’s goals involves developing relationships with CDFIs and other mission-driven organizations who can supply a steady flow of referrals. “There are more than 1,000 CDFIs, thousands of chambers of commerce [and] economic development corporations — this is our target market in terms of our partners,” Sands said.
In addition, Lendistry also plans to work with banks and credit unions that aren’t active 7(a) lenders themselves.
One community bank, the $643 million-asset, African American-owned OneUnited Bank in Boston, has already struck a deal to provide deal flow. As part of an agreement announced this month, OneUnited will refer customers seeking small-business loans to Lendistry. For the bank, beyond the referral fees it will earn, the collaboration offers it an introduction to small-business lending, something it doesn’t offer currently.
“It gets our toes in the water, and it does it with an organization that we’ve worked with and has proven to really understand the needs of our community, which is largely minority, largely Black, largely small businesses that are mom-and-pop businesses that have felt shut out of the capital access markets,” OneUnited President Teri Williams said in an interview.
The connection with Lendistry struck an immediate chord with OneUnited’s customers, who have surprised even Williams by how quickly they embraced the new connection.
“Two days in, I called over to Lendistry and asked if there were any applications,” Williams said. “They said, 'We’ve already gotten 150 inquiries.' We do surveys of our customers, and business loans were one of the top requests, so we knew there was a need out there, a desire, but we were really surprised by that feedback.”
Williams added that she sees OneUnited’s links with Lendistry as a long-term commitment. Ultimately, she expects it to lead to an expanded presence in commercial and industrial lending. “We do think this partnership will grow enough and be deep enough for us to expand, possibly, into other types of commercial products.”
William Michael Cunningham, CEO of Creative Investment Research in Washington and an authority on the African American banking sector, called the partnership between Lendistry and OneUnited, which is primarily a multifamily lender, a smart move on the bank’s part. “It gets them out from under the regulatory burden and cost that comes with SBA lending, and it blunts any criticism that they aren’t making enough loans” to individuals and small businesses, Cunningham said.
The SBA has capped the number of nondepository lenders allowed to participate in the 7(a) program at 14 since January 1982. That cap remains in place, but in August, Sen. Tim Scott, R-S.C., and Sen. John Hickenlooper, D-Colo., introduced legislation that would end the moratorium on nonbank lenders and open 7(a) to fintech lenders. To date, their Expanding Access to Affordable Credit for Small Businesses Act has failed to advance out of the Senate Committee on Small Business and Entrepreneurship.
It's likely at least one more SBLC license will go on the market in the next few months. Newtek Business Services, the second-biggest 7(a) lender in the country by dollar volume, announced a deal to acquire a small New York bank last year and
