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Getting More Loans into the Hands of the Underserved
by Cassius Butts, Regional Administrator, U.S. Small Business Administration
As Regional Administrator for Region IV of the U.S. Small Business Administration, my job, and the job of the agency, is to help more small business owners and entrepreneurs gain access to the capital they need to start or grow their business.
SBA has made gains in expanding its programs, but there is still more to do to ensure that our SBA loans are available to every business owner who needs one. Underserved communities in particular still have trouble accessing the capital they need to achieve their dreams.
When Maria Contreras-Sweet became SBA Administrator in April 2014, she made clear that improving access to capital for the underserved would be a top priority. That is why we are pleased to announce that under her leadership, SBA will be transforming its guarantee process to serve America’s small businesses – and the entrepreneurs who own those businesses – better.
In an effort to simplify our loan application process, we have streamlined our underwriting by making a total credit scoring model, which SBA has been testing and refining for over a decade, available to all of our lending partners for loans of $350,000 or less. These changes went into effect in July 2014.
The SBA total credit score combines an entrepreneur's personal and business credit scores and makes it easier and less time -intensive for banks to do business with the SBA. This model reduces costs and is credit – based, ensuring that risk characteristics, not socio-economic factors, determine who is deemed creditworthy.
Along with this simplification, SBA is eliminating requirements for time – consuming analyses of a company's cash flow on small loans under $350,000, a step that can delay loan decisions.
Additionally, in October 2013, SBA set fees to $0 on loans of $150,000 or less, another way to reduce the costs for lenders of making smaller loans. Why does this matter? Because often, the smaller or newer the business, the smaller the loan. And as these businesses grow, they will come back to SBA for additional loans, creating jobs along the way. So encouraging lenders to making smaller loans is good for the economy, good for businesses, and good for our communities.
These changes make sense. They are another step in SBA’s efforts to modernize its lending process and incentivize lenders to get more loans into the hands of traditionally underserved entrepreneurs.
We know that the key to a strong and lasting middle – class is opportunity for all. The President has made clear that we must grow our economy from the middle out. Key to that is access to the American Dream of starting and owning your own business. Making SBA loans easier and more affordable will enable more lenders to participate in SBA’s loan programs for small businesses, and more entrepreneurs will succeed.