Small Business Administration Finalizes Rules to Bridge Capital Gaps for Underserved Communities, Boosting Economic Growth

The Biden-Harris Administration’s Efforts to Promote Inclusive Economic Development Culminate in New SBA Regulations

The U.S. Small Business Administration (SBA) has taken significant steps to address the persistent gaps in capital access faced by small business owners in underserved communities. The recently finalized rules, part of the Biden-Harris Administration’s commitment to nurturing the economy from the middle out and bottom-up, aim to stimulate economic growth and create opportunities for entrepreneurs. These regulations grant permanence to the SBA’s program for nonprofit mission lenders, eliminate outdated restrictions on non-depository lender participation, encourage employee ownership, and modernize credit criteria and underwriting standards, promoting wider distribution networks and small-dollar loans.

Small businesses have long been recognized as the driving force behind the economy. Under President Biden’s Investing in America agenda, remarkable progress has been made, including the creation of over 12 million jobs and a surge in small business applications, with 10.5 million new businesses launched. However, challenges persist for small business owners, particularly those in underserved communities. Startling statistics reveal that in 2022, two out of three business owners who sought credit were unable to secure the necessary financing. Additionally, the number of lenders originating SBA’s 7(a) loans under $50,000 and $150,000 has declined by more than 40% and 25% respectively in the past five to seven years.

U.S. Small Business Administrator Isabella Casillas Guzman emphasized the significance of modernizing and expanding SBA’s lending programs, stating, “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. 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.”

Patrick Kelley, Associate Administrator for the SBA’s Office of Capital Access, added, “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.”

Leaders from various organizations, including the African American Alliance of Community Development Financial Institutions (CDFIs), the National Association of Latino Community Asset Builders, the National Urban League, the Native CDFI Network, Oweesta Corporation, and Prosperity Now, praised the reforms brought forth by the Biden-Harris Administration. They believe that these changes will effectively address capital gaps, strengthen underserved markets, and increase capital access for Black and Brown entrepreneurs, ultimately fostering inclusive economic growth.

To expand economic growth opportunities, President Biden’s economic agenda has focused on supporting the establishment and growth of small businesses. However, entrepreneurs often struggle to obtain affordable loans, particularly those in rural areas, minority-owned businesses, and very small businesses seeking small-dollar loans. The SBA’s final rules aim to address these challenges by:

• Addressing capital access market gaps in underserved communities:
• Modernizing lending criteria and conditions for SBA’s business loan programs, allowing lenders to make loan decisions based on their existing credit policies for non-SBA loans of similar size.
• Providing additional flexibility for loans under $150,000, reducing the complexity and cost of small-dollar lending.
• Streamlining paperwork for lenders to expedite the loan process.
• Simplifying affiliation standards to clarify who qualifies for an SBA loan and ease the burden on small business owners and lenders.
• Expanding the number of participating SBA lenders:
• Increasing the number of Small Business Lending Company (SBLC) licenses, enabling responsible small business lending through non-depository lenders backed by SBA loan guarantees.
• Granting permanence to SBA’s program for nonprofit, mission-oriented lenders by introducing a new Community Advantage SBLC license, providing long-term certainty and encouraging investment in SBA lending operations.
• Strengthening lender oversight and borrower protection through modern technology, making the process more efficient.
• These rules build upon previous measures, such as the expansion of the Community Advantage Pilot Program, which increased the maximum loan size, lifted the lender moratorium, expanded the lender network, and allowed for tailored loan modifications.

The SBA’s commitment to revitalizing underserved communities, supporting diverse entrepreneurs, and fostering inclusive economic growth is central to the Biden-Harris Administration’s vision of a robust and equitable economy. These new regulations aim to bridge the gaps in access to capital, empowering small businesses and paving the way for continued prosperity.

Remember, the SBA is dedicated to helping you succeed!

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