SBA expands access to business loans

In its ongoing efforts to open new opportunities for entrepreneurs in underserved communities, the Small Business Administration (SBA) is expanding its lending programs. The new rules are designed to broaden access to SBA loans for minority-, veteran, and women-owned businesses.

What are the New SBA Rule Changes?

The SBA announced two rule changes in April 2023 that will impact several loan programs. The first, published on April 10, affects SBA affiliations and lending criteria. The second, posted on April 12, updates the moratorium on licensing new Small Business Lending Company (SBLC) licenses.

The objective of the new SBA rules is to increase access to loans for businesses in underserved communities that are typically declined because they can’t meet strict credit requirements. The rule changes, which took effect in May 2023, seek to achieve this objective by:

• Increasing the number of lenders processing SBA loans
• Enabling more businesses to qualify for loans using looser credit standards
• Simplifying the loan process to improve the experience for lenders and businesses

Expanding the Number of SBA Lenders

The SBA designates certain banks as qualified SBA lenders. In addition, it extends that designation to a limited number of Small Business Lending Companies (SBLC), which are non-depository institutions. Before the new rule, institutions seeking to become an SBLC had to purchase one of only 14 licenses available from the SBA from an existing licensee, who then had to leave the program. Under the new rule, the SBA has lifted the 14-license cap to allow additional companies to apply.

Expanding the Community Advantage Program

Prior to the new rule, the SBA licensed specific for-profit and nonprofit lenders for its Community Advantage program to provide SBA loans to businesses in underserved markets. However, this program was a temporary pilot program due to end in 2024.

The SBA has created a new, permanent SBLC license for Community Advantage lenders, consisting only of nonprofits and mission-focused companies, targeting underserved markets, such as veteran- and women-owned businesses, startups, and businesses in rural and low-income communities.

Fewer Credit Requirements for 7(a) and 504 Loans

Previously, businesses had to meet the SBA’s strict credit requirements to qualify for an SBA loan. The SBA has now reduced the number of credit-qualifying factors from nine to just three. The original nine factors included:

• Ability to make loan repayments
• Character and credit history
• Collateral
• Experience
• Invested equity
• Past and future business financial statements
• Potential that the business will succeed
• Strength of the business

Under the new credit criteria, the SBA will only consider the following three factors:

• Credit score or history
• Earnings or cash flow of the business
• Collateral

The streamlined criteria should result in more businesses qualifying for a loan using these objective factors rather than relying on more subjective factors such as character.

Bottom Line

The new rules and regulations increasing the availability of lenders to target underserved markets, expanding and making permanent the Community Advantage program, and loosening the lending criteria are expected to substantially increase the number of businesses qualifying for SBA 7(a) and 504 loans. This new influx of capital to underserved markets has the potential to boost economic growth in low-income and rural communities while launching a new generation of entrepreneurs.