SBA streamlines small-business lending

The top official of the U.S. Small Business Administration (SBA) on May 11 announced streamlined lender procedures for small-business loans.

The announcement follows the recent finalization of two new rules aimed at “closing gaps in capital access” for small-business owners across the nation.

“The ongoing modernization of SBA’s loan programs will help ensure more borrowers can get funded through a broader network of lenders so they can help build a strengthened American economy that innovates, manufactures and provides the products and services that make our lives better across Main Street,” Isabella Casillas Guzman, SBA administrator, said in a release.

SBA says it recognizes that small businesses — particularly those owned by individuals in underserved communities who are “highly entrepreneurial” — still face “longstanding barriers” in accessing capital needed to start or grow their businesses. 

With that in mind and “building on the newly finalized rules,” SBA has plans to streamline eligibility determination of SBA-backed loans. 

To reduce the burden on SBA lenders and streamline operations, SBA will bring eligibility determination on SBA loans in-house through new technology starting Aug. 1, 2023. The move will ensure more lenders can focus on their customers and expand capacity to increase lending, “especially small-dollar lending.”

The agency also plans to add new fraud review on all loans. The SBA says it will use advanced data analytics, third-party data checks, and artificial-intelligence tools for fraud review on all loans in the 7(a) and 504 loan programs prior to approval, starting Aug. 1. 

To date, loan approval in these programs has largely been delegated to lenders, who approve loans based on SBA rules but without the agency checking for indicators of fraud upfront, the agency said. 

“These new changes are an important step toward ensuring that more small-business owners have the opportunity to grow and succeed,” Patrick Kelley, SBA associate administrator, said in the release. “Building on controls deployed under the Biden-Harris Administration, SBA will safeguard taxpayer dollars, protect the integrity of our programs, and simplify the application process for both lenders and small business owners – a win-win for everyone.”

Additional material published

The SBA also recently published additional material as part of the loan programs’ modernization.

It included new, simplified guidelines for lenders on how to make SBA loans a part of a new standard operating procedure (SOP). Under the new rules, SBA lenders will now be able to use their existing credit policies for similarly sized non-SBA loans up to $500,000. 

This will expand the number of credit-worthy business owners who can access SBA loans, “especially small-dollar loans.” 

The agency also published new procedures cutting red tape, as outlined in a procedural notice removing the requirement for a loan authorization, a set of forms that has become “duplicative and unnecessary” for lenders, the SBA contended.

The agency also included details “simplifying and clarifying” affiliation standards to ease the burden on small-business owners and lenders, and make clear who qualifies for an SBA loan, as part of a new informational notice.

In addition, SBA will continue to post updates in the coming days, including a notice to accept new lender applications in the Small Business Lending Company (SBLC) program. This will allow the existing program to provide loans to an expanded number of small businesses. SBA will accept applications beginning June 1 until July 31. SBA will name up to three new SBLCs. 

The updates will also include additional, simplified lender guidelines on topics such as lender participation, servicing, and liquidation, the agency said.