Funding Circle, a London-based financial technology firm, received its small business lending company license last week, nearly four months after the Small Business Administration announced it would issue the license to the company.

When Funding Circle executives met with the SBA on March 5, agency officials said they expected to complete the review and approval of policies and internal controls by April 1 — the date SBA gave the final approval, Ryan Metcalf, head of public affairs for Funding Circle US, told Banking Dive.

The company's U.S. counterpart is sufficiently capitalized and is preparing to begin offering 7(a) small loans as intended. However, the company has not identified a specific date that it will begin lending, Metcalf added.

Last April, the SBA lifted a 40-year moratorium on non-depository small business development companies that limited the number to 14. In November, the agency agreed to grant SBLC licenses to Arkansas Capital Corp., McKinley Alaska Growth Capital, and Funding Circle US.

The SBLC program is an effort by the agency to modernize itself to meet the needs of today’s small businesses and bridge the gaps in rural and underserved communities, according to an SBA spokesperson.

“The addition of three new SBLC licenses provides needed competition, which is ultimately good for small businesses and the economy,” the spokesperson told Banking Dive via email. “The SBA is proud of the historic action we’ve taken to address long-standing capital access gaps to level the playing field for small business owners, and will continue to pursue novel lending approaches to meet the needs of small businesses.”

Senior executives at the agency led the application process to get the SBLC license, which expanded the SBA's lending to deserving small businesses. The process included reviewing audited financials, ensuring the applicant was appropriately capitalized, examining small business lending experience, and reviewing proposed business models — the areas where the three new SBLCs excelled, according to the SBA.

The green light comes despite staunch opposition from critics. Those include senior lawmakers from both parties in Washington and exiting 7(a) lenders, who fear that granting SBLC licenses to fintechs like Funding Circle could lead to a potential surge in fraudulent loans, akin to the challenges faced by the Paycheck Protection Program.

The SBA, for its part, said that preventing, detecting and fighting fraud is among its top priorities. The agency took lessons from the COVID-19 pandemic and has strengthened its anti-fraud network for identifying fraudulent schemes. As a result, the SBA introduced its Risk Mitigation Framework in 2023 to check every application for fraud indicators before approval.

Metcalf noted that existing 7(a) lenders have resisted increased competition since the beginning of the process. The non-depository lenders existed in the 7(a) program for 40 years, with the SBA overseeing more than 200 non-depository lenders yearly.

“The existing 7(a) lenders have absolutely no incentive to allow more lenders into the program because there’s a [nearly] $36 billion cap on 7(a) loans every year, so they see it as a fixed pie. And any more lenders in the program [would take a portion] from the pie,” Metcalf noted.

Since entering the U.S. market in 2013, Funding Circle has originated over $4.8 billion in loans to more than 45,000 businesses. According to its earnings report, in 2023, the company reported a loss of roughly $5 million before interest, taxes, depreciation and amortization. 

However, the SBA noted that non-depository lenders commonly incur operating losses while pursuing growth, a longstanding practice in small business lending. As the government modernizes, accepting such models reflects the realities small businesses face in securing financing, necessitating adaptation and alignment.

Last month, Sen. Joni Ernst, R-IA, questioned SBA Administrator Isabel Guzman over her renewed push for nonbank entities’ direct lending and criticized the agency’s decision to give Funding Circle its first license.

Ernst claimed Funding Circle CEO Lisa Jacobs stated that the company did not have enough capital to start making loans in April and plans to sell the license soon.

The London-based company has received some “expressions of interest in the U.S. business,” which it is evaluating, according to Metcalf. The discussions are in the early stages, and if Funding Circle executes a transaction, it would be to recapitalize the business, he clarified.

“Funding Circle will never solely sell the SBLC license. That’s never been on the table,” Metcalf said. “In the possible scenario of a change of control, 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) small loans per our business plan submitted to the SBA.”