The U.S. Small Business Administration (SBA) has implemented new rules to improve capital access for underrepresented business owners, including rural, veteran, women, and minority-owned enterprises. These updates offer permanence to the SBA program for nonprofit mission lenders, remove outdated restrictions on non-depository lender participation, enhance opportunities for employee ownership, and modernize credit criteria and underwriting standards. The rules aim to further incentivize a broader distribution network and small-dollar loans to bridge the persistent capital access gaps faced by small businesses in underserved communities.
Small businesses have long struggled to receive the credit they need, with two out of three business owners who sought credit in 2022 failing to secure the necessary funds. The number of lenders participating in SBA’s 7(a) loans under $50,000 and $150,000 had decreased by over 40% and 25%, respectively, over the past five to seven years. By implementing these new rules, the SBA aims to open new opportunities for underserved communities and close the existing gaps for small businesses in need of capital.
These new rules will address capital access market gaps in underserved communities by modernizing the lending criteria and conditions for SBA’s business loan programs and reducing red tape for SBA lenders. In turn, this will increase the number of credit-worthy business owners who can access SBA loans, particularly among underserved communities such as women, minority, veteran, and rural entrepreneurs. SBA is achieving this by updating lending criteria for its 7(a) and 504 loan programs in various ways, including allowing lenders to make SBA loan decisions based on their existing credit policies for similarly-sized non-SBA loans, offering more flexibility for loans under $150,000, streamlining paperwork required for lenders, and simplifying affiliation standards.
Furthermore, the SBA aims to expand the number of participating lenders who can offer SBA-guaranteed loans, thereby providing small businesses with more options to meet their capital needs. The SBA will increase the number of Small Business Lending Company (SBLC) licenses, which have been limited to 14 for 40 years. Additionally, the SBA will grant permanence to its program for nonprofit, mission-oriented lenders by creating a new Community Advantage SBLC license. Although the Community Advantage Pilot Program has shown success with higher rates of lending to Black, Hispanic, women, and veteran-owned businesses, its pilot status has limited the program’s long-term certainty and investment potential.
These new rules will lift the moratorium on new regular SBLCs, allowing additional licensees to make loans to small-dollar borrowers with government guarantees. This change will reduce risks and broaden opportunities for small businesses. By providing permanence to the Community Advantage program, the SBA encourages current and new nonprofit lenders to invest in and expand their SBA lending operations. The utilization of modern technology will further strengthen lender oversight and borrower protection, making it more efficient than before.
The newly-implemented rules build on a previous announcement that increased the maximum loan size for the Community Advantage Pilot Program from $250,000 to $350,000, lifted the four-year lender moratorium, and enabled the SBA to expand its lender network, among other benefits for small business borrowers.
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