The Small Business Administration has given final approval to Funding Circle's application to join the agency's $35 billion 7(a) loan guarantee program. The move comes despite strong opposition from groups representing existing 7(a) lenders, as well as senior lawmakers from both parties in Washington.
Funding Circle US received word of SBA's decision, which came after about four months of review, on Monday, Ryan Metcalf, head of public affairs for the company, said Wednesday. The company hopes to begin making 7(a) loans this month, Metcalf added.
SBA did not respond to a request for comment by deadline.
Existing 7(a) lenders have been vocal in their opposition to Funding Circle US, along with SBA's wider policy aim of boosting the number of nondepository small-business lending companies allowed to participate in 7(a). In April 2023, SBA finalized a rule ending a 40-year moratorium that had capped the number of SBLCs at 14. The agency later agreed to
Arkansas Capital and McKinley Alaska are both relatively small community development financial institutions. Funding Circle US, by contrast, is a nationwide online lender that has originated more than 57,000 small-business loans totaling $4.5 billion since 2013, when its parent, London-based Funding Circle, established a subsidiary here.
Groups representing legacy 7(a) lenders, whose numbers are dominated by banks and credit unions, have voiced concerns that opening the door to Funding Circle and other fintechs might set the stage for a surge of fraudulent loans, similar to
"Funding Circle is losing money and has stated it doesn't have the capital" to participate in 7(a), Anthony Wilkinson, president of the National Association of Government Guaranteed Lenders said in a recent interview. "The SBA is still moving forward to give it an SBLC License. It should be running away from Funding Circle."
The doubts surrounding Funding Circle US multiplied last month, triggered by a seemingly straightforward decision made in London by the company's senior management team. Despite the fact the U.S.-based subsidiary was, at that time, sitting on the cusp of receiving one of the highly-sought-after SBLC licenses, Funding Circle signaled its intent to shift gears and funnel more capital to projects in Britain. Commenting on the company's 2023 financial results, released March 7, CEO Lisa Jacobs said Funding Circle wanted to reinforce the success of its FlexiPay and U.K. loans business lines.
"We believe that a simpler, more profitable combined U.K. business will deliver greater shareholder value with improved profitability and cash generation," Jacobs said on a conference call with investors.
Funding Circle reported losing about $5 million in 2023 before interest, taxes, depreciation and amortization.
Almost as an afterthought, Jacobs added Funding Circle had received "expressions of interest for the U.S. business" and entered into discussions with third parties. "We're limited in terms of what we can say and we will make further comments in due course," Jacobs said on the conference call.
That terse admission has roiled SBA circles. Indeed, lawmakers were quick to raise the specter of Funding Circle US, along with a freshly minted small-business lending company license, going up for grabs.
In an April 2 letter to SBA Administrator Isabel Casillas Guzman, Senate Small Business Committee Chair Jeanne Shaheen, D-New Hampshire, called the SBA's plan to grant Funding Circle an SBLC license into question. "Awarding a license to a company that is preemptively seeking to offload its operation even before receiving its full approval or making an SBA loan would be unprecedented and, in my view, extremely unwise," Shaheen wrote.
Shaheen's letter comes two weeks after a contentious hearing, during which Sen. Joni Ernst, R-Iowa, the Small Business Committee's ranking minority member,
According to Metcalf, the discussions involving the future of Funding Circle US "remain in the early stages." In the meantime, the subsidiary is amply funded and "preparing to begin offering 7(a) loans" — its intent all along. Metcalf pushed back against suggestions Funding Circle US misled the SBA or plans to use the SBLC license as a bargaining chip. Claims about selling the license on a standalone basis are way wide of the mark," Metcalf said.
"We will never sell the license solely. That's off the table," Metcalf said. "We said in March that we expected to be able to start lending in April."
"Our intention in the scenario of a change of control, would be that any transaction regarding the U.S. business would be to a well capitalized U.S. domiciled entity willing to provide the capital to enable Funding Circle USA to continue making 7(a) loans," Metcalf said.
SBA's decision to still grant Funding Circle an SBLC license despite strong objections from both senior members of the Senate Small Business Committee may come back to haunt the agency. SBA faces growing opposition to its agenda, including the SBLC policy and a renewed push for direct lending authority. Guzman views both as critical tools to boost access to credit among underserved groups.
Congress is considering legislation, which Shaheen cosponsored, to reimpose the SBLC moratorium, this time capping the number of nondepository 7(a) lenders at 17. Another bill would bar SBA from making direct 7(a) loans.
