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Opinion: Getting faster loans to more small businesses, especially in underserved communities

Posted on 8/6/2014 by EDTP Coordinator in Small Business & The Economy Small Business Policy

As regional administrator for Region II of the U.S. Small Business Administration, it’s my job, and the job of the agency, to try to help as many small-business owners and entrepreneurs as possible to access the capital they need.

We know we’ve made gains in expanding our programs, but there is still more to do to make sure SBA loans are available to every business owner who needs one to start or grow a business.  Underserved communities in particular still have trouble accessing the capital they need to achieve their dreams. 
When Administrator Maria Contreras-Sweet started on the job in April, she made clear that improving access to capital for the underserved would be a top priority.  That’s why we’re pleased to announce that under her leadership, we are transforming our guarantee process to better serve America’s small businesses and the entrepreneurs behind them. 
In an effort to simplify our loan application process, we’re streamlining our underwriting by making available a “total credit scoring” model we’ve been testing and refining for more than a decade to all of our lending partners on loans of $350,000 or less.  These changes are going into effect this month.
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 credit-based model reduces costs and ensures that risk characteristics – not socio-economic factors – determine who is deemed credit-worthy.
Along with this simplification, we’re eliminating requirements for time-consuming analyses of a company's cash flow on loans under $350,000, a step that can delay loan decisions.
Additionally, at the beginning of the upcoming fiscal year in October, we eliminated fees on loans of $150,000 or less, another way to reduce the costs for lenders of making small-dollar 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 for additional loans, creating jobs along the way.  So, encouraging lenders to make more small-dollar loans is good for the economy, it’s good for businesses and it’s good for our communities.
So far this year, the SBA New Jersey district office has approved 334 loans to small-business owners in underserved communities for a total of $153 million. The number of loans represents 35 percent of the SBA’s total loan approvals to small businesses throughout the state and 33 percent of the total dollar amount. With these changes already in place, we expect to see an increase in the number of loans in underserved markets, such as Trenton and other communities, to increase.
These changes make sense.  They are another step in our efforts to modernize our lending process and bring it up to speed with the high-tech era we live in.  They will make it easier and less time-intensive for banks to do business with the SBA.  We’re making these changes knowing that it will simplify and streamline the lending process, which will incentivize banks to make more small-dollar loans in order 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.  By making SBA loans easier and more affordable, more lenders will join our program, more small businesses will have access to our lending products and more entrepreneurs will succeed. 
Bernard J. Paprocki is acting regional administrator of the U.S. Small Business Administration’s Region II regional office, which comprises New Jersey, New York, Puerto Rico and the U.S. Virgin Islands.
Source: www.nj.com/opinion/index.ssf/2014/07/opinion_getting_faster_loans_to_more_small_businesses_especially_in_underserved_communities.html