In my first 100 days as the administrator of the U.S. Small Business Administration, I’ve participated in constructive exchanges with bankers all across the country gathering insight about how we can get more capital into the hands of America’s small businesses. We understand that feedback from the lending community is essential and we want to say loud and clear to everyone who has shared their thoughts — including those in a recent issue of American Banker Magazine — that we are listening.
The two most important asks the SBA has heard from lenders are: modernize and simplify lending processes, and enhance existing lending programs, specifically 7(a) and 504 loans. Both practices, if done right, can foster the growth of American enterprises and maximize our economy’s job creation potential.
The SBA is committed to modernizing and simplifying its lending practices and, under the Obama administration, the agency has eliminated pages of regulations that were blocking the capital pipeline and hindering the growth of our economy.
First, we eliminated the wealth test so borrowers are no longer turned down for 7(a) and 504 loans because they enlist a wealthy investor to help underwrite their project. Secondly, we removed the nine-month rule, so as long as the expense is related to a 504 project, the loan covers it. Lastly, we changed our collateral rules to give borrowers more flexibility. This allows applicants to declare other assets when applying for a 504 loan in order to receive a lower interest rate. The SBA is committed to adopting common-sense reforms that make it easier both for borrowers and lenders.
One of my top priorities as SBA administrator is to implement smart systems that encourage our lending partners to provide more capital to Main Street. Just recently, we launched the SBA’s credit scoring tool for 7(a) loans, which effectively streamlines underwriting guidelines for loans under $ 350,000. This online tool automates a major piece of required credit analysis through the use of a dynamic and predictive scoring system. The result is an objective assessment of risk that allows the lending process to become faster, fairer, and more accurate and consistent — expediting access to much-needed capital for entrepreneurs and business owners.
And, we aren’t stopping there.
In an effort to save banks thousands of dollars and hours of paperwork, we are gearing up to launch SBA One, an interactive, user-friendly lending platform that will automate the upload of documents, generation of forms, and accept electronic signatures. By facilitating expedited decisions on loan applications and digitalizing paperwork, we trust that the loan application experience will prove to be faster, simpler and more effective for our lending partners and small business-owners alike.
The SBA’s 7(a) and 504 loans support over 650,000 jobs and granted nearly $ 30 billion in loans in fiscal year 2013. We are working to ensure 7(a) loans are accessible, inclusive and reflective of America’s diverse business community. Four out of five loan applications we receive from Hispanic- and African-American business owners are for $ 150,000 or less. As a result, the SBA has decided to reduce to zero our fees on loans under $ 150,000, which resulted to a 15% increase in our small-dollar lending.
The SBA’s 504 loan program was well received by the lending community, and we have heard your appeals to push for the reauthorization of its refinancing component. I have testified before the Senate and asked to restore lenders’ ability to make refinancing loans under this program.Currently, the 504 refinancing option is part of President Obama’s budget, and is awaiting approval from Congress.
Our nation’s lending community plays a crucial role in the growth and expansion of small businesses, and the health of our economy. The SBA looks forward to building stronger relationships with banks of all sizes and will continue to offer a forum for discussion and exchange of ideas, so please keep your valuable insight coming.
Together, we can find effective solutions that improve the lending process and facilitate the access of capital for America’s entrepreneurs.