WASHINGTON, DC – The Biden Administration is streamlining the process for numerous small-business proprietors to access the necessary loans for initiating and expanding their enterprises.

As part of a series of revisions, the Small Business Administration (SBA) is simplifying the prerequisites for loans to facilitate the engagement of financial-technology firms. The SBA is also widening the range of nonbank lenders authorized to issue SBA loans.

Many of these modifications took effect on August 1. They were introduced to aid small businesses that have faced challenges in obtaining funding, mainly due to banks’ focus on larger commercial borrowers.

“Capital plays a pivotal role in initiating and fostering the growth of small businesses. The alterations spearheaded by Administrator Guzman in the SBA’s small business loan programs play a critical role in addressing ongoing gaps in capital access, especially for rural and minority-owned small businesses,” stated Han Nguyen, a spokesperson for the SBA. “By promoting equality and creating inclusive opportunities through these measures, we are paving the way for a diverse array of dynamic small businesses and innovative startups to flourish, ultimately forging a more robust and resilient economy for all.”

SBA loans, typically facilitated by banks and other financial institutions, assist entrepreneurs in commencing and expanding their small businesses. Entrepreneurs can secure SBA-backed loans of up to $5 million. As per the SBA’s 2023 budget request, the agency supported $34 billion in loans in 2021. Generally, the SBA commits to covering 75% to 85% of loan principals, thus reducing risk and enhancing appeal for lenders.

As part of the fresh lending criteria, the SBA intends to:

– Allow lenders to evaluate SBA loan applications based on their established practices for non-SBA loans. This entails considering credit scores, revenues, and equity to grant or decline loan requests.

– Simplify smaller loan processes, increasing flexibility and reducing complexity.

– Eliminate cumbersome paperwork for lenders.

“These changes will extend access to SBA loans to a broader pool of creditworthy business proprietors, including women, minority entrepreneurs, employees seeking ownership shares in a business, and nascent small businesses,” stated the SBA in an official statement.

The new standards aim to streamline SBA regulations and offer clarity on the SBA’s definition of “affiliation,” a term that has caused confusion regarding loan eligibility due to its association with business ownership. As part of this initiative, the SBA pledges to introduce additional safeguards to ensure loans are granted exclusively to small businesses and remove specific cumbersome rules for applicants.

The new SBA guidelines permit lenders to extend loans up to $500,000 through their conventional credit policies, with the SBA assuming responsibility for pre-screening tasks, including fraud checks. As part of this expansion of lending institutions, the SBA plans to incorporate new nonprofit lenders under a fresh Community Advantage Small Business Lending Company license.

According to the SBA, in 2021 and 2022, over 10.5 million individuals sought to establish new businesses. Nevertheless, specific demographic groups in the US have encountered obstacles in securing affordable loans.

The SBA highlighted that more than 1,600 rural areas were grappling with banking deserts caused by bank-branch closures. Recent data shows that fewer microenterprises have secured loans, while startups have historically been viewed as risky by banks. Furthermore, Black- and Hispanic-owned small businesses have faced more significant difficulties in obtaining credit compared to their white-owned counterparts.