New SBA Initiatives to Increase Lending to Underserved Communities

Since 2008, lenders have tightened their belts and reduced the flow of loans to small businesses. That cinch especially has strained traditionally underserved communities, including women, minorities and rural regions. Two new initiatives announced by the U.S. Small Business Administration in December are designed to help entrepreneurs overcome challenges and attain SBA-backed loans.

Studies by SBA and the U.S. Department of Commerce have demonstrated the importance of lower-dollar SBA 7(a) loans to small business formation and growth in underserved communities. SBA’s recent initiatives will enhance access to these loans through a streamlined application process and greater market availability.

SBA’s new programs utilize 7(a) government-guaranteed loans, the agency’s most popular loan product. The loans can be used for a variety of general business purposes, including working capital and purchases of equipment and real estate. The two new loan initiatives – Small Loan Advantage and Community Advantage – will offer a streamlined application process for loans up to $250,000. The loans are supported by the regular government guarantee: 85 percent for loans up to $150,000 and 75 percent for those greater than $150,000.

The Small Loan Advantage program will be available to 630 financial institutions through the SBA Preferred Lender Program, where the lenders make the final credit decisions for loans.

The Community Advantage program is intended to expand access to SBA 7(a) loans by increasing loan availability from “mission-focused” financial institutions, including community development financial institutions, certified development companies and nonprofit mircolending intermediaries. SBA Administrator Karen Mills says that partnering with organizations experienced with lending to underserved communities will leverage their management and technical expertise and improve the probability of borrower success.

Part of the SBA “Advantage” platform, the Small Loan Advantage and Community Advantage programs should be implemented by March 15. A similar existing SBA program, Community Express pilot loan program, will end April 30.

Mills says SBA recognizes the potential of entrepreneurs and small businesses to drive economic growth and create high-level jobs in communities throughout the U.S. These new programs are designed to expand the market presence of SBA loans and help small business owners grow their companies.

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