New SBA Initiatives To Increase Lending in Underserved Communities

As the nation turns its attention to serving the underserved during the Martin Luther King, Jr. Day of Service, SBA does as well. In the Recession’s wake, small business owners in America’s underserved communities – which include minority, female and rural area populations – are among the hardest hit by the tightening commercial loan market. In response SBA has introduced two new lending initiatives (both expected to begin accepting applications in mid-March 2011) and announced an Advisory Council on Underserved Communities focusing efforts to increase SBA-backed loans to small businesses in those markets.

To address the demand for lower-dollar loans in underserved communities, SBA introduced in December the Small Loan Advantage lending initiative. The initiative, part of the SBA’s popular 7(a) loan guarantee program, makes issuing SBA-backed “7(a) loans” of up to $250,000 to the underserved business community simpler for lenders through a streamlined loan application process. The SBA’s 7(a) Loan Guaranty Program is the SBA’s primary financial assistance instrument. It provides loan guaranties on business loans to help qualifying entrepreneurs secure financing on reasonable terms. The program operates through private-sector lenders who provide loans. Loans issued under the 7(a) loan guarantee program come with a government guarantee: 85 percent for loans up to $150,000 and 75 percent for those greater than $150,000. Small Loan Advantage loans will be available to the 630 financial institutions across the country in SBA’s Preferred Lender Program (PLP). Under PLP, which includes most of the agency’s highest volume lenders, SBA delegates the final credit decisions to lenders, expediting the loan approval process.

For its part, SBA’s new Community Advantage lending initiative, also introduced in December 2010, will expand the points of access small business owners have for getting loans by opening SBA’s 7(a) program to “mission-focused” financial institutions including Community Development Financial Institutions, Certified Development Companies and non-profit microlending intermediaries. Community Advantage will leverage the experience these institutions already have in lending to minority, women-owned and start-up companies in economically challenged markets with their management and technical assistance expertise, to help make their borrowers successful.

In conjunction with the roll-out of these two new lending programs, SBA introduced its new Advisory Council on Underserved Communities. The CUC will provide input, advice and recommendations on how SBA programs can help strengthen competitiveness and sustainability for small businesses in underserved communities. The council will consist of 20 members from across the country. It is anticipated that members will reflect a variety of key sectors, including business owners, banking and finance, community development, nonprofit and academia. Catherine L. Huges, chairperson and founder of Radio One, Inc., and a former SBA borrower, will chair the new council.

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