Republican lawmakers are calling on the Small Business Administration to rescind Funding Circle’s Small Business Lending Company license, which the fintech received last month.

London-based fintech Funding Circle received the license on April 1 — one of three companies selected to receive the SBLC license after the 40-year moratorium on non-depository small business development companies was lifted last April. In November, the agency agreed to grant SBLC licenses to Arkansas Capital Corp., McKinley Alaska Growth Capital, and Funding Circle US.

Rep. Roger Williams, R-TX, chairman of the House Committee on Small Business, and Sen. Joni Ernst, R-IA, ranking member of the Senate Committee on Small Business and Entrepreneurship, wrote to SBA Administrator Isabel Guzman April 24 expressing concerns over SBA’s approval of Funding Circle receiving the license and shedding doubt on the agency’s capacity to serve as a regulator for the additional SBLCs.

“Until our concerns are alleviated and we are confident that the SBLC license will not put the integrity of SBA’s flagship lending program at risk, the Administration should not allow Funding Circle to enter the 7(a) program,” Williams and Ernst wrote.

The SBA, for its part, said the Biden-Harris access reforms are working as small-dollar lending was up 44% relative to this point last year, an indication that SBLCs are an integral part of the growth, the agency told Banking Dive via email.

“Adding new SBLC lending options for small business owners promotes competition and levels the playing field, which is good for small businesses and the economy,” an SBA spokesperson said via email. “After a months-long 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.”

The lawmakers’ letter details Funding Circle’s intention to shift focus to its more profitable U.K. business and sell off its U.S. operations — an assertion the company has refuted.

Ryan Metcalf, head of Funding Circle’s public affairs, thinks there is a “misunderstanding” about the fintech’s strategic decision announcements last month.

“Let’s be clear, the decision to evaluate interests from 3rd party entities to recapitalize the U.S. business is because Funding Circle US is well positioned to originate more SBA 7(a) small loans to underserved small businesses than originally planned and will eventually need more capital than Funding Circle plc would be able to provide considering the competing priorities in the UK business,” Metcalf told Banking Dive via email.

Funding Circle SBLC debate

The Funding Circle approval came amid opposition. In March, Ernst questioned Guzman on the SBA’s decision to give fintechs access to a key SBA lending program, saying Funding Circle CEO Lisa Jacobs stated the company does not have enough capital to start making loans.  

Soon after, on April 1, Sen. Jeanne Shaheen, D-NH, chair of the Senate’s small business committee, wrote a letter to Guzman, saying that awarding the license to Funding Circle would be “extremely unwise” in her opinion.

In last week’s letter, lawmakers called the SBA “irresponsible” in issuing the SBLC license to the London-based company, “at a time when their own CEO was announcing its departure from the U.S. market as a result of its net operating losses, and publicly questioned the financial viability of its U.S. business,” Williams and Ernst wrote.

The senators pointed out that Funding Circle’s financial viability showed signs of weakness when it reported a $16.6 million net operating loss in its half-yearly performance record, a pre-tax loss of $33.2 million in 2023, and $12.9 million in 2022.

“Clearly, these issues are not new,” Williams and Ernst wrote April 24. “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,” they added.

Michele Alt, co-founder and partner at advisory and investment firm Klaros Group, thinks Jacobs’s statement on the company’s U.K. business offering a quicker return to profitability doesn’t necessarily mean the U.S. business is doing poorly. 

“That's not how I was reading that at all. And in fact, her statement about receiving expressions of interest in the U.S. business, I think, was her attempt to reassure people that the business is indeed viable,” Alt told Banking Dive. “In other words, nobody would buy it if the business wasn't viable. I think that was what she was signaling.”

The lawmakers also highlighted that Funding Circle was one of the companies that advocated lifting the moratorium. They also asked for the ranking and names of all other SBLC applicants that did not receive the license in the most recent application process.

“Granting Funding Circle an SBLC license now would set a troubling precedent on setting a monetary value for this government-backed license and its potential use in enticing buyers,” Williams and Ernst wrote.

SBLC importance

Scott Stewart, CEO of the Innovative Lending Platform Association, thinks that granting fintechs the path to access capital will help reach out to the small businesses left behind in rural and urban areas.

“It is an important tool to help the SBA achieve its mission to help finance America's small businesses. The current average SBA 7(a) loan is now close to $500,000, hardly qualifying as a small business loan any longer,” Stewart told Banking Dive via email. “Allowing digital first underwriting through new SBLC licenses to fintechs will help the SBA reach small businesses looking for less than $150,000 in working capital and it makes sense.”

Alt thinks Congress members are missing out on the whole point of the program — small businesses need capital. Banks and credit unions are favored in the current scheme of 7(a) since having a bank or credit union charter indicates robust regulatory confidence in the lender and a significant supervisory oversight of that lender. One possible solution, Alt said, would be for regulators to say they are more comfortable with chartered banks and credit unions participating in the program.

“But you would have to actually grant new charters to banks and credit unions. The regulators have not been in the business of doing so.” 

The application activity of fintechs applying for a charter has also gone downhill in recent times — one of the reasons being the slim chances of getting one.

There has not been a new fintech bank charter granted since 2020,” Alt added.