The partial government shutdown is over — at least for now. But thousands of small businesses
One of the consequences of the shutdown was a halt to the Small Business Administration’s business lending program. While the SBA does not directly lend itself, it still must process applications for the business loans that it guarantees. This includes almost
Small businesses employ
The SBA is in a class of its own as a conduit for affordable capital to small businesses. It approved over 68,000 loans,
The government shutdown highlights an opportunity for the government to evolve this program. One potential opportunity is to prioritize working with fintech credit providers, including enhancing capital market access for small business assets. Fintechs have shown that they can reduce delays and inefficiencies in the lending process, without sacrificing credit affordability, rigorous risk assessment, or compliance and controls.
Even aside from the shutdown, business owners seeking 7(a) loans go through a process that is unnecessarily long, complex and with multiple fees. They may be asked for documents like a written profile of their business, or the personal resumes of the owners. And they may have to pay a credit check fee, packaging fee, referral fee or other added fees. This is not how business lending needs to work today.
A business owner’s time is their most valuable resource. They expect applications they can submit on their phones 24/7, and decisions in hours or days. They don’t have time to prepare massive packets of documents. They also expect simple fee structures and transparency throughout the process.
Unlike most traditional banks, fintechs are unencumbered by legacy systems and structures that slow down decisioning. They can automate most of the credit risk evaluation process, and use models that become stronger and more predictive over time. By adopting this more modern approach to business lending, the points of friction that require manual work by the SBA, and slow down the availability of credit to small businesses, can be improved, diminishing the impact of government disruption.
Beyond simply being more open to nonbank lenders, there’s so much further the SBA could go. Imagine what could happen if a fraction of the
The SBA’s business loan program is one of the most important mechanisms the government has to drive growth in the economy. We owe it to small businesses to bring this program into the 21st century. Establishing a new relationship between the SBA and fintechs can help this program not only weather the inevitable next shutdown, but also expand and accomplish its mission more effectively.