In a move designed to simplify the process for small businesses to get loans, the Small Business Administration (SBA) is not only increasing the number of lenders, it’s allowing banks to make decisions on small business loans using their existing frameworks for non-business loans.
It has been well-documented that Black and other minority groups have a more difficult time securing capital for their businesses.
“The changes Administrator Guzman is making to SBA small business loan programs are critical to addressing persistent capital access gaps, particularly for rural and minority-owned small businesses,” Han Nguyen, a spokesman for the SBA, told Business Insider. “By leveling the playing field and fostering inclusive opportunities through these actions, we are paving the way for diverse and dynamic small businesses and innovative startups to grow, creating a stronger and more resilient economy for all.”
According to a 2021 Nerd Wallet article, Black and other people of color receive less business financing, less often and at higher rates, receive more financial scrutiny, less outside equity, and more discouragement from even applying for loans.
“These changes will expand the number of creditworthy business owners who can access SBA loans, including among women, minority entrepreneurs, employees purchasing a portion of a business from its owner(s), and startup small businesses,” the SBA said in a statement.
Additionally, the SBA told Business Insider that the new lending rules would significantly help demographics that have been historically locked out of the financial system by closing gaps in capital and giving potential business owners more options.
The SBA will take over prescreening actions like fraud checks and it will create a new license to enroll new nonprofit lenders. The Community Advantage Small Business Lending Company is an offshoot of the SBA Community Advantage Loan program which will allow nonprofit lenders to participate in granting funds to small businesses.
Even though the SBA seems certain that these changes will positively benefit minority business owners, some have raised the alarm that the increased credit lines could result in more defaults of loans, Business Insider reports.
Bi-partisan legislation has been sponsored to establish annual stress tests for small businesses as well as making a pilot program aimed at assisting underserved borrowers to get small-dollar loans a permanent program. We will see if these changes by the SBA will have their intended effect, or if those who think that it could make things worse for small business owners are correct.
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