Underserved small business owners to get boost from new USBA rules

Two rules to address persistent gaps in access to capital impacting small business owners have been finalized by the U.S. Small Business Administration. 

The rules impact small business owners in underserved communities and grant permanence to SBA’s program for nonprofit mission lenders, remove outdated limits on non-depository lender participation, increase opportunities for employee ownership, and modernize the credit criteria and underwriting standards to incentivize a wider distribution network and small-dollar loans. 

SBA Administrator Isabella Casillas Guzman said in a statement that modernizing and expanding SBA’s lending programs will open new opportunities to entrepreneurial but underserved communities that have been denied access to the funding needed to create jobs and grow the economy. 

“Equity has been a top priority of the Biden-Harris Administration since day one as our economy needs all of our great ideas and talented entrepreneurs.,” said Guzman. “These rule changes demonstrate that commitment by providing government-guaranteed lenders with all the tools they need to close the gaps that still exist for small businesses who need capital.” 

SBA’s rules will help new entrepreneurs grow their businesses by addressing capital access market gaps in underserved communities and expanding the number of participating SBA lenders.

To increase the number of credit-worthy business owners who can access SBA loans, particularly among underserved communities like women, minority, veteran, and rural entrepreneurs, SBA is modernizing the lending criteria and conditions for its business loan programs and reducing red tape for SBA lenders. SBA is achieving this by updating lending criteria for its 7(a) and 504 loan programs, including by:

• Allowing lenders to make SBA loan decisions based on their existing credit policies for similarly sized non-SBA loans. 
• Providing additional flexibility for loans under $150,000 to reduce the cost and complexity of small-dollar lending. 
• Streamlining paperwork required of lenders, enabling them to spend more time with applicants and make loans more efficiently. 
• Simplifying and clarifying affiliation standards to ease the burden on small business owners and lenders and make clear who qualifies for an SBA loan.

SBA will expand the number of lenders who can offer SBA-guaranteed loans, providing small businesses with more options for meeting their capital needs. The rule will expand the number of Small Business Lending Company (SBLC) licenses, which promote responsible small business lending through non-depository lenders backed by SBA loan guarantees.

SBA is addressing capital access gaps by granting permanence to SBA’s program for nonprofit, mission-oriented lenders by creating a new Community Advantage SBLC license. Community Advantage lenders have lacked long-term certainty about their participation in SBA programs due to the pilot status of the program.

Despite these limitations, SBA said the Community Advantage Pilot Program has demonstrated success with higher rates of lending to Black, Hispanic, women, and veteran-owned businesses.

SBA’s rule will achieve the following:

• Lift the moratorium on new regular SBLCs and allow for additional licensees, enabling them to make loans to small-dollar borrowers with government guarantees, reducing risks and broadening opportunities. 

• Provide certainty through permanence of Community Advantage, encouraging current and new nonprofit lenders to invest in and expand SBA lending operations. 
• Utilize modern technology to make lender oversight and borrower protection stronger and less resource-intensive than was possible when the SBLC moratorium was put in place.

These rules build upon a previous announcement on the Community Advantage Pilot Program that increased the maximum loan size from $250,000 to $350,000, lifted the four-year lender moratorium, enabled the SBA to expand the lender network, and allowed lenders to offer lines of credit, interest-only periods, and other loan modifications that meet the needs of small business borrowers.

Patrick Kelley, associate administrator for the SBA’s Office of Capital Access, said it’s imperative that entrepreneurs from underserved communities have access to stable and affordable capital to grow and expand their businesses.

“With these new rules, the SBA is taking steps to invest in credit-worthy entrepreneurs and mission-oriented lenders, which will build on the Biden-Harris Administration’s progress to date,” said Kelley.